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Current ratio and inventory

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA APM Exams › Current ratio and inventory

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by Ken Garrett.
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  • January 23, 2024 at 6:59 am #698904
    Fidha.n
    Participant
    • Topics: 1
    • Replies: 0
    • ☆

    If current ratio = more than 1 , Is the inventory slow moving?

    January 23, 2024 at 1:41 pm #698934
    Ken Garrett
    Keymaster
    • Topics: 10
    • Replies: 10583
    • ☆☆☆☆☆

    Not necessarily. You could have a CR>1 with no inventory at all.

    Of course, higher inventory will increase the CR, but that does not necessarily mean inventory is sticking. For example, current liabilities might be very low.

    The best indication of slow moving inventory is to calculate the inventory days: inventory x 365/cost of sales. If CoS not available use purchases. If this rises from our uearto the next order is high compared to industry averages) it implies inventory might be slow-moving.

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