This can only mean two things: it is either going to increase its turnover by selling more of their inventory, or the company will face storage or holding costs if it can’t sell a significant amount of its inventory. The inventory turnover ratio is very important when we want to determine a certain company’s performance, as the ratio itself depends on two components of the latter.įirst of all, we have stock purchasing – for example, we have a company that buys a large amount of inventory. Let’s begin with an example – if we have a company that has an average inventory that’s worth $1000 and, by the end of the year, it manages to have a profit of $10,000, it means that the company has sold its inventory 10 times over. The Inventory Turnover Ratio – What You Need to Know In short, this ratio rounds up the times a company has managed to sell its average inventory during a year when compared to the dollar amount of the average inventory. The result will show us how many times on average is the inventory sold, or turned, during a period. When calculating the inventory turnover ratio, we compare the cost of goods sold with the average inventory, for a certain period of time. This ratio is used to determine whether the inventory of a business is managed in an efficient manner or not. Now we’ll look into the efficiency ratio that is the inventory turnover ratio. Release Updates Outlined feature updates from our last releases.Help Center Endless support in case you are stuck.OKR Canvas Kick start your OKR implementation right away.Answers (FAQs) Get instant solutions to your queries.OKR Webinars Discover current trends and expert insights.OKR Examples Collection of OKR examples for your business.KPI Library Find the Most Effective KPIs for your business.eBooks Books sharing our OKR expertise, ideas and insights.OKR University OKR resources for beginners and experts.OKR Certification Iterate Faster with OKRs Coaching & Certification Programs.Why ? Know what customers like you think about us.Case Study Know why 1000s of brands trust.Integrations Integrate easily with all your favorite apps.Employee Engagement Engage, align and inspire your team.Task Management Increase day-to-day productivity.
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