![]() In theory, businesses will always aspire for a higher inventory turnover ratio as the high inventory turnover ratio reduces the amount of capital tied up in the inventory. ![]() However, the question remains is a high inventory turnover ratio good or bad? industries selling medium to large-valued items, tend to have a lower inventory ratio. Industries stocking small to medium-value items tend to have a higher inventory ratio vs. How will a business define a good inventory turnover ratio?ĭepending on the industry benchmark for a good inventory turnover ratio can vary. ![]() The average value of inventory in the formula is used to overcome the effects of seasonal sales.Ī company can divide the days in the period, typically a fiscal year, by the inventory turnover ratio to calculate how many days it takes, on average, to sell its inventory.Īre you looking for the perfect solution for your business needs? Sign up for the Free personalized Product Tour to begin your journey today! Average inventory= (Beginning inventory + Ending inventory)/2 In Versa Cloud ERP the cost of goods sold is considered for the calculation instead of inventory for inventory turn over ratio because inventory only included the cost component and COGS included the markups of sales.
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