Sample interview questions: Can you explain your approach to evaluating a borrower’s inventory management and turnover ratios?
Sample answer:
Evaluation Approach for Inventory Management and Turnover Ratios:
Inventory Turnover Ratio:
- Calculate the inventory turnover ratio by dividing the cost of goods sold by the average inventory.
- Analyze the ratio over time to identify trends and compare it to industry benchmarks.
- A higher ratio indicates that the company is effectively managing its inventory, reducing storage and holding costs.
- A lower ratio suggests potential issues with inventory management, leading to increased costs and potential obsolescence.
Days Sales in Inventory (DSI) Ratio:
- Calculate the DSI ratio by dividing the average inventory by the daily cost of goods sold.
- Convert to days by multiplying by 365.
- A lower DSI ratio indicates efficient inventory management, while a higher ratio suggests excessive inventory or potential liquidity concerns.
Evaluation Process:
- Review supporting documentation: Examine purchase orders, inventory records, and physical inventory counts to assess inventory accuracy and management practices.
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