Inventory turnover 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. 

Turnover ratios measure the efficiency with which an organization uses its assets. They are also referred to as efficiency ratios or asset utilization ratios. The two most commonly used turnover ratios are inventory turnover and receivables turnover. 

Inventory turnover ratio = cost of goods sold average inventory (at cost)... 

Inventory turnover A ratio that reflects the number of times in a fiscal year that a pharmacy s inventory is sold and replaced. 

The most common ratio used to determine how well a pharmacy is managing its inventory is the inventory turnover rate (ITOR). It can be calculated for the entire pharmacy, for departments (e.g., prescriptions or OTC products), and even for individual products. The ITOR is expressed as a ratio and is calculated by using the following formula (Tootelian and Gaedeke, 1993 West, 2003, 2006) ... 

Good management practice will hold inventories at the lowest possible levels consistent with customer satisfaction and efficient plant operation. Excessive inventories are unproductive and are an investment having little or no rate of return. Excessive inventories should be maintained only when supplies are erratic or rising in price. Management should normally aim for a high inventory-turnover ratio, as given by ... 

The efficiency ratio, also called the activity ratio, measures the speed at which a company moves its assets through operations. The efficiency and solvency ratios can be used together to effectively assess fhe firm s solvency position. Two of the most common activity ratios are the accounts receivable turnover and inventory turnover ratios. 

Inventory/stock Stock is second measure of success and efficiency. Inventory needs to be replenished, but should be in an optimum quantity. More stock than required increases in-house cost and reflects loss, as the stock may not be able to be sold. Less stock means a fear of losing customers, which is also a loss as customers may decide not to come back next time. To measure stock efficiency, inventory turnover ratio is calculated, which means how quickly the product is sold. 

Second, companies need to be cautious when comparing themselves to who they think their competitors are, considering a number of variables. Would it make sense to compare Target Corporation to Nordstrom These companies, while both retailers, cater to different consumer segments and use different strategies. Because of this, comparison is difficult and impractical. Even comparison between high and low margin retailers is not worthwhile because ratios such as inventory turnover are quite different. Despite the difference, each type or retailer is likely satisfied with its own ratio. 

One of the most commonly used ratios is the inventory turnover ratio. It indicates how many times inventory sold out and then a company bought new inventory to replenish stock for a given time period. It conveys how efficiently the company purchases, produces, and sells... 

An important caveat for this ratio is the ways in which it can be manipulated. Other ratios can be manipulated as well, but the inventory turnover ratio is common and used frequently. For example, on way to manipulate the ratio would be to delay the purchasing of inventory until the next reporting period, artificially showing a better inventory turn for the current period. A manipulative practice such as this will eventually catch up to the company, though. 

Days in inventory = 365 days/Inventory turnover ratio = 365/9.16 = 39.85 days... 

The temporal trend of the C/C ratio in soil humus (from prenuclear time to the present) makes it possible to separate the contribution of passive compounds that have very long soil residence times (measured in hundreds to thousands of years) and hence will be little changed by man s activities, and those active compounds which have relatively short chemical lifetimes (measured in decades). It also allows the characterization of the average turnover time of these active components. Further, by conducting such measurements on soils from different climate zones, it is possible to get a handle on how the turnover time of active compounds depends on temperature. Clearly, knowledge of this dependence is critical to the prediction of future global humus inventories. 

There is a connection between DSO and A/R turnover ratio, just as there is a connection between inventory turns and days in inventory. PepsiCo s DSO of 38.22 days times the number of A/R turns of 9.55 is equal to 365 days in 1 year. 

---