A:

The industries that tend to have the most inventory turnover are those with high volume and low margins, such as retail, grocery and clothing stores. Inventory turnover measures the rate at which a company purchases and resells its products to its consumers. The two equations for inventory turnover are as follows:

Inventory turnover = sales / inventory

Inventory turnover = cost of goods sold / average inventory

For example, if a company has a yearly inventory amount of $100,000 and a yearly sales amount of $1 million, its inventory turnover is 10. This means that over the course of the year, the company effectively replenished its inventory 10 times.

In industries such as the grocery store industry, it is normal to have very high inventory turnover. According to CSIMarket, the grocery store industry had an average inventory turnover of 18.56, which means the average grocery store replenishes its entire inventory close to 19 times a year. This high inventory turnover is largely due to the fact that low-margin industries such as the grocery store industry need to offset lower per-unit profits with higher unit sales volume. These types of industries have proportionately higher sales than inventory costs for the year.

In addition to high volume and low margin industries needing a higher inventory turnover to remain cash-flow positive, a high inventory turnover can also signal an industry as a whole is enjoying strong sales or has very efficient operations. It is also a signal the industry is less risky since the industry as a whole can replenish its cash quickly and is not stuck with inventory that can become obsolete or outdated.

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