![]() ![]() What Does It All Mean?įigures are only meaningful if we think about what they’re telling us. We’ve applied the more accurate Inventory Turnover formula using the Cost of Goods Sold, rather than sales, figure. This is the number of times each company has replenished their inventory in one year. ![]() Let’s look at the inventory turnover of 3 different companies over 1 financial year. The Cost of Goods Sold formula is also better to get an overall annual picture because it evens out any seasonal peaks and troughs. Using the sales figure misleadingly inflates the inventory turnover figure because it includes the sales mark-up. The inventory turnover ratio that uses Cost of Goods Sold is a more accurate indicator of your business’s health. Which Inventory Turnover Ratio Is Most Useful? This could be a financial period, year, quarter, season or month – depending on how you want to use the information. The inventory turnover ratio applies to a set time period. Calculate this by adding the beginning inventory and end inventory balances together, then divide by two.
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