inventory turnover


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Inventory turnover

A measure of how often the company sells and replaces its inventory. It is the ratio of annual cost of sales to the latest inventory. One can also interpret the ratio as the time to which inventory is held. For example a ratio of 26 implies that inventory is held, on average, for two weeks (365 days in a year divided by inventory turnover ratio of 26 equals 14 days pr 2 weeks average inventory holding period). It is best to use this ratio to compare companies within an industry (high turnover is a good sign) because there are huge differences in this ratio across industries.

Inventory Turnover

A measure of how long it takes, on average, for a company to sell and replace its inventory. Inventory turnover can help a company or potential investor determine how well the company manages its inventory. Higher inventory turnover is considered to be desirable. The turnover is calculated as follows:

Inventory turnover = Cost of goods sold / ( ( Beginning inventory + ending inventory ) / 2 )

inventory turnover

A measure indicating the number of times a firm sells and replaces its inventory during a given period and calculated by dividing the cost of goods sold by the average inventory level. A relatively low inventory turnover may indicate ineffective inventory management (that is, carrying too large an inventory) or carrying out-of-date inventory to avoid writing off inventory losses against income. A high inventory turnover is generally desirable.
References in periodicals archive ?
These variables are: accounts collectables, average outstanding, and inventory turnover in days with cash cycle.
We are interested in the behavior of firms' net working capital, inventory turnover and receivables turnovers when monetary policy is contractionary, and check whether certain firm characteristics help to insulate the firms from the effects of tighter monetary policy.
The usual formula for the inventory turnover ratio is cost of goods sold during the year divided by the average inventory investment during the year.
High-profit LBM stores greatly outperformed typical stores in inventory turnover, sales to inventory, GMROI, sales per square foot, gross margin per square foot, sales per employee and gross margin per employee--all the key profitability and productivity ratios.
H2: Efficiency firms have higher inventory turnover than flexibility firms.
Investment in IT and improved distribution and inventory management procedures should translate into higher inventory turnover.
found that the average inventory turnover had risen from 8.
We also intend to reduce our inventory levels and increase our inventory turnover with the introduction of small-lot, quick-turn production processes, standardization of materials, and shorter lead times for vendor delivery," O'Sullivan said.
The paper points out that such methods include using the prior year's deflator index and an application of inventory turnover to the current year deflator index (e.
According to a study by the National Association of Manufacturers, American companies are using technology to slash production errors, boost profits, and speed inventory turnover.
Inventory turnover has been consistently at or above 1.
The store has quick Inventory turnover and would be excellent for a part-time owner.