Accounting · Ratio Analysis

Evaluate the accuracy of the following statements regarding operational efficiency: Statement 1: The Inventory Turnover Ratio measures how many times a company's stock is turned into sales, and a declining ratio often serves as an early warning of potential obsolescence or poor supply chain management. Statement 2: A very high Inventory Turnover Ratio, while generally positive, may sometimes indicate dangerously low stock levels leading to frequent stock-outs and lost sales opportunities. Statement 3: When calculating the Inventory Turnover Ratio, it is technically more accurate to use the Cost of Goods Sold as the numerator rather than Sales, because Sales include a profit margin while Inventory is recorded at cost.