|
|
| Inventory
Turnover |
= |
Cost
of Goods Sold |
|
Average
or Current Period Inventory |
|
An
important and often overlooked ratio that indicates inventory levels.
Things
to remember |
- A
low turnover is usually a bad sign because products tend
to deteriorate as they sit in a warehouse.
- Companies
selling perishable items have very high turnover.
- For
more accurate inventory turnover figures, the average
inventory figure, ((beginning inventory + ending inventory)/2),
is used when computing inventory turnover. Average inventory
accounts for any seasonality effects on the ratio.
|
|
|
[Click
on the image(s) above to see the financial statements] |
For
Cory's Tequila Co. |
$4,240 |
=
6.50 |
$652 |
|
Inventory
Analysis
Cory's
Tequila Co. inventory has gone up almost 100% since last year, this
could mean nothing or something. There could be something fundamentally
wrong, perhaps sales are slowing. A change of 100% is quite substantial
and should be a cause for concern if sales are slowing. But if we
look more closely at Cory's Tequila Co.'s sales it shows that product
sales have increased almost 50% since last year. In other words
the higher inventory could simply be a factor of higher demand.
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