Page 18 - FINAL CFA I SLIDES JUNE 2019 DAY 8
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LOS 28.j: Explain issues that analysts should consider
when examining a company’s inventory disclosures Session Unit 8:
and other sources of information. P.194 28. Inventories
Signal of firms future revenues and earnings:
1. What does build up of raw materials or WIP inventory mean?
2. Finished goods inventory increasing whilst revenues/earnings is declining?
3. Finished goods raising faster than sales (declining demand or obsolete stock/holding
costs/cash flows?) tanties
4. What does high inventory turnover mean?
(might mean you are not holding enough, or write down occurring –check this with sales
growth as high turnover and low sales growth in industry?)
