In the context of inventory turnover, the statement "A low inventory turnover can be improved by ordering merchandise in smaller quantities at more frequent intervals" is True.
Here's why:
1. Definition of Inventory Turnover: Inventory turnover is a financial ratio that measures how many times a company sells and replaces its inventory over a specific period, usually a year. A higher inventory turnover ratio is generally preferred as it indicates that the company is selling goods quickly and efficiently.
2. Impact of Low Inventory Turnover: A low inventory turnover ratio suggests that the company is holding onto its inventory for a longer period before selling it. This can tie up capital, increase storage costs, and lead to obsolescence risks, negatively affecting profitability.
3. Ordering Strategy: By ordering merchandise in smaller quantities at more frequent intervals, a company can potentially increase its inventory turnover. Smaller orders can help prevent overstocking, reduce storage costs, and minimize the risk of items becoming obsolete.
4. Example: For instance, if a company traditionally orders a large quantity of inventory infrequently and struggles to sell all the items quickly, switching to smaller, more frequent orders can help match supply with demand more efficiently, leading to a higher inventory turnover ratio.
Therefore, by adjusting the ordering strategy to smaller and more frequent intervals, a company with a low inventory turnover can potentially improve its performance in terms of inventory management and financial efficiency.
