A higher ratio is generally more favourable than a lower one, as it typically signifies robust sales performance. The turnover ratio is determined through a mathematical computation, obtained by dividing the cost of goods sold by the average inventory over the corresponding period. Conversely, consumer packaged goods sell faster and have a high turnover. Luxury items sell very slowly and will sell only a few units. It mainly depends on the industry type and the product category. Many high-achieving companies have multiple inventory turnovers every year. If the company sells all of the stock it purchased, it means that one complete turnover of inventory is over. Inventory turnover is a financial metric that indicates how frequently a company replenishes its inventory in relation to the expenses incurred for producing those goods in a specific timeframe. It refers to the total duration of the product stored in the inventory till it is sold. The inventory turnover ratio is also known as the stock turnover ratio. Overall, the turnover ratio is required to identify and keep the sales sail in the right direction. From pricing strategy and supplier relationships to promotions and product lifecycle, get relevant data with this strategy.įurther, the inventory turnover ratio provides information on a company’s forecasting, inventory management, sales and marketing expertise. It gives information on everything about the inventory and its products. This is where inventory turnover calculation is beneficial. It means that the companies must know what’s coming and what’s moving. All companies should have accurate data about their products. In a business, it is common that sometimes the product sells off soon and sometimes the product remains on the shelf for a long time. It is directly linked to the profit of the company. Inventory is a crucial part of any business.
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