Bower Corp's cost of sales has remained steady over the last two years. During this same time period, however, its inventory has increased considerably. What does this information tell you about the company's inventory turnover? Explain your answer
Inventory turnover equals cost of goods sold (cost of sales) divided by average inventory. If the cost of sales remains constant while the denominator (average inventory) increases, inventory turnover will decrease. This indicates that inventory is staying on the shelf for a longer time. The company should probably evaluate the salability of its inventory.
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