Slow inventory turnover means that you have too much capital invested in inventory. You could reduce inventory levels and put that money to better use - marketing, reduction of debt, etc
ending inventory
cost of goods sold/ Average inventory
Higher Rates
Number of days inventory in hand tells about how many day's inventory is available while inventory turnover tells about how many times in a fiscal year inventory is used to convert to finished goods for sale.
Good inventory turnover will depend on the industry. For instance, home sales is much slower than groceries and personal goods.
An aircraft company will incur low inventory turnover if the stock is purchased as bulk and demand is low, thus slow discharge of inventory.
Inventory turnover is the standard at which product inventory is acquired or made and further sold within a year. An assessment of all inventory-related business factors will have an impact on inventory turnover.
Generally inventory turnover period is calculated as: Sales/Inventory Also by, Cost of Goods Sold/ Average Inventory
Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory and Average Inventory = ( Beginning Inventory + Ending Inventory ) / 2
The annual inventory turnover in the retail painting industry is obtained by dividing the Annual Cost of Sales by the Average Inventory Level. A low inventory turnover ratio is a signal of inefficiency.
prophitability
inventory turnover ratio==cogs/average inventory average inventory=opening inventory + closing inventory/2 average inventory =4500+5500/2 =5000 inventory turnover ratio = 20000/5000 = 4
ending inventory
cost of goods sold/ Average inventory
Higher Rates
Number of days inventory in hand tells about how many day's inventory is available while inventory turnover tells about how many times in a fiscal year inventory is used to convert to finished goods for sale.
Good inventory turnover will depend on the industry. For instance, home sales is much slower than groceries and personal goods.