Inventory-sales ratio

Activity ratios are a measure of how effectively a firm manages its assets. There are two inventory/turnover ratios in common use today. The inventory/sales ratio is found by dividing the inventory by the sales. Another method is to divide the cost of sales by inventory. The average collection period measures the number of days that customers invoices remain unpaid. Fixed assets and total assets turnover indicate how well the fixed and total assets of the firm are being used. 

Therefore, requests for early repayment by more than 40 percent of the debtors could be met. Hence, no hquidity problems are likely to arise, and advantage can be taken of discounts for early payment. Also, the current debt could be met by sale of the inventory, which takes (0.140 As/As)(365), or 51 days. The quick ratio is 1/2.45 = 0.407. 

Case 1. A completely new business is assumed with financial ratios of working capital plus inventory at 29% of sales, and plant plus equipment at cost as 42% of sales. 

The cost of producing inventory was calculated by assuming the company would build up inventory in each year equal to 12.7 percent of sales in the year (the average ratio of inventory to sales in the six U. S.-owned companies examined by OTA). If inventories are valued at the cost of goods sold, this percent is... 

Inventory turns measure the number of times inventory turns over in a year. It is the ratio of average inventory to either the cost of goods sold or sales. 

Faster modes of transportation are preferred for products with a high value-to-weight ratio (an iPad is a good example of such a product) for which reducing inventories is important, whereas cheaper modes are preferred for products with a small value-to-weight ratio (e.g., furniture imported by IKEA) for which reducing transportation cost is important. The choice of transportation mode should take into account potential lost sales and cycle, safety, and in-transit... 

Retail inventory management is concerned with determining the amount and timing of receipts to inventory of a particular product at a retail location. Retail inventory management problems can be usefully segmented based on the ratio of the product s life cycle T to the replenishment lead-time L. If T/L < 1, then only a single receipt to inventory is possible at the start of the sales season. This is the case considered in the well-known newsvendor problem. At the other extreme, if T/L 1, then it s possible to assemble sufficient demand history to estimate the probability density function of demand and to apply one of several well-known approaches such as the Q,R model. 

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