Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Overtrading
- This topic has 5 replies, 2 voices, and was last updated 7 years ago by John Moffat.
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- October 26, 2016 at 7:35 am #346069
Is it correct to say that a reduction in inventory turnover will as well mean a reduction in inventory days?
Since we’re selling out the inventory quickly although it’s on credit.
October 26, 2016 at 10:11 am #346092No. You are confusing together three different things!
Inventory turnover is purchases / inventory.
The lower the inventory days, the less inventory they are holding, and therefore the greater will be the inventory turnover.
It is irrelevant whether the inventory is purchased on credit or not.
Lower inventory could be as a result of over-trading, but on its own would not necessarily mean they were over-trading – it could simply be that they were managing inventory more efficiently.
October 26, 2016 at 12:25 pm #346108So if we do have a lower inventory period but an extremely high receivable period which (on average) rarely occurs in that particular industry, that would be overtrading?
October 26, 2016 at 2:04 pm #346118They could be indicators, would it would not necessarily mean over-trading.
Have you watched my lectures on this? The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exams well.
October 26, 2016 at 5:56 pm #346148Yes, I have. Thank you very much!
October 27, 2016 at 7:30 am #346221You are very welcome 🙂
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