Inventory Turnover
 |
Definition of 'Inventory Turnover'A ratio showing how many times a company's inventory is sold and replaced over a period. The days in the period can then be divided by the inventory turnover formula to calculate the days it takes to sell the inventory on hand or "inventory turnover days." |
||
 |
Investopedia explains 'Inventory Turnover'Although the first calculation is more frequently used, COGS (cost of goods sold) may be substituted because sales are recorded at market value, while inventories are usually recorded at cost. Also, average inventory may be used instead of the ending inventory level to minimize seasonal factors.This ratio should be compared against industry averages. A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying. High inventory levels are unhealthy because they represent an investment with a rate of return of zero. It also opens the company up to trouble should prices begin to fall.
|
Related Definitions
Articles Of Interest
-
Analyze Investments Quickly With Ratios
Make informed decisions about your investments with these easy equations. -
Measuring Company Efficiency
Three useful indicators for measuring a retail company's efficiency are its inventory turnaround times, its receivables and its collection period. -
Inventory Valuation For Investors: FIFO And LIFO
We go over these methods of calculating this component of the balance sheet, and how the choice affects the bottom line. -
Understanding The Cash Conversion Cycle
Find out how a simple calculation can help you uncover the most efficient companies. -
What are the generally accepted accounting principles for inventory reserves?
As with most matters related to generally accepted accounting principles (GAAP), accountants assigned with the task of applying GAAP to inventory reserves often use a significant amount of personal ... -
Pay Attention To The Proxy Statement
Don't overlook this overview of a company's well-being. -
Explaining Amortization In The Balance Sheet
Amortization is important to account for intangible assets. Read to find out more about amortization. -
Equity Valuation: The Comparables Approach
The main purpose of equity valuation is to estimate a value for a firm or security. There are three primary equity valuation models: the discounted cash flow (DCF), cost and comparable approaches. ... -
Understanding Off-Balance Sheet Financing
For anyone who was invested in Enron, off-balance sheet (OBS) financing is a scary term. Off-balance sheet financing means a company does not include a liability on its balance sheet. It is ... -
Top 4 Most Competitive Financial Careers
If your goals include a big paycheck and working for a Wall Street firm, then you need to learn how to meet employers' expectations.
Free Annual Reports