What isInventory Turnover?
Inventory turnover is a financial ratio that measures how many times a company's inventory is sold and replaced over a specific period. It assesses how efficiently a company manages its inventory.
Inventory turnover is a financial ratio that measures how many times a company's inventory is sold and replaced over a specific period. It assesses how efficiently a company manages its inventory.
Introduction: Inventory turnover is a key efficiency ratio that measures how many times a company's inventory is sold and replaced over a specific period, typically a year. It provides insights into the company’s ability to manage its inventory effectively and the demand for its products. A high inventory turnover rate may indicate strong sales or effective inventory management, whereas a low turnover rate might suggest overstocking, obsolescence, or weak demand. Calculating inventory turnover helps businesses make informed decisions regarding purchasing, production, and marketing strategies to optimize inventory levels and reduce holding costs.
Calculation:
Inventory Turnover = Cost of Goods Sold (COGS) / Average Inventory
Strategies to Improve Inventory Turnover:
Challenges in Managing Inventory Turnover: