TURNOVER OF INVENTORY:
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FORMULA |
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Net Sales / Inventory |
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MEASURE WHAT |
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Measure the efficiency of the usage of inventory in generating sales |
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SCORE/VALUE |
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Varies. The higher is the more effective |
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SALIENT POINTS TO NOTE |
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Comparing similar periods and similar industry statistics determines measures of efficiencies by which the assets in this inventory are employed in the business.
The faster the turnover of inventories, it means that there will lesser obsolete or slow moving stock. With a higher inventory turn, inventory are more frequently being  roll out from the warehouse for delivery to the customers.
This financial ratio forms part of the working capital cycle management or cash operating cycle of the business. With a higher inventory turn, goods delivered to the customers can be billed hence quicken the turn on accounts receivable with the ultimate objective of getting the monies back from the customers. |