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Freeing Up Cash by Increasing Inventory Turnover Ratio

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Williams & Sons last year reported sales of $10 million and an inventory turnover ratio of 2. The company is now adopting a new inventory system. If the new system is able to reduce the firm's inventory level and increase the firm's inventory turnover ratio to 5, while maintaining the same level of sales how much cash will be freed up?

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Solution Summary

The solution explains how to calculate the freed up cash for the fictional William & Sons quickly and clearly with calculations shown.

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Inventory turnover = Sales/Inventory
Inventory = Sales/Inventory Turnover
With an ...

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