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Cost of Goods Sold
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| Inventory Turnover =
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Inventory
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Explanation of Inventory Turnover:
The Inventory Turnover measures the how well the company can
manage to sell its inventory. Another way of saying this is how
efficiently the company converts inventory into sales.
Importance of Inventory Turnover:
If the company can quickly sell its inventory, then the Inventory
Turnover will be higher. Conversely, if the company cannot sell its
inventory very well, then the Inventory Turnover will be low. You will
have to watch this figure closely - if the Inventory Ratio climbs too high,
then the company may be keeping too little inventory. This could cause
lost profits due to customer orders that had to wait until inventory arrived.
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