Before you invest in a business, a business person is going to have to make a decision about what will be in stock on the balance sheet.The idea should be based on how quickly it will be converted or sold.
Inventory turnover ratio (assets) - a direct measure of operating efficiency of the company to manage its assets.Minimizing inventories reduces overhead, thus improving profitability.The amount of time during which the company turns its stock, depends largely on the industry.For retailers that sell perishable products, fashion, high-tech products have a high turnover, compared with companies selling consumer durables.Just as companies processing industries to producers of heavy equipment.
Therefore, the comparison is valid only if it is made between the two companies, representing the same industry.There is a good rule of thumb - it lies in the fact that if the inventory turnover ratio multiplied by the gross profit margin (as a percentage) and he will be 100 percent or more, the stocks are in an optimum ratio.
In general, high turnover indicates better performance, low - means poor management, overstocking, deficits in the production line, or marketing activities.At the same time, in the sectors of high turnover increased turnover can lead to loss of sales due to inventory shortage, and low interest be appropriate when the expected price increases or shortages in the market.
Inventory turnover ratio is calculated in accordance with accounting standards, using the formula: Cost of Goods Sold รท average value stocks.This is one of the most important financial ratio that measures the liquidity of the company's assets.It helps the business owner to determine how to increase sales by monitoring the status of stocks.
Most investors focus on revenue and profit growth.Some pay attention to cash flow.But not all delve into the balance sheets, examining such things as accounts receivable, payables and assets.
Inventory turnover ratio extremely important.Business owners need to understand why their turnover ratio is high or low.To do this, he must consider the company's investment in stocks, and to determine which are the most productive.It is also important to use comparative data, such as a temporary trend or industry data, making it possible to compare the ratio of assets to analyze too high or too low turnover.Formula coefficient reflects period of turnover of stocks and interpreted, as a measure of how much the amount of time the company sold them throughout the year (quarter).
Asset turnover - indeed often missed the metric in the company.However, it directly affects the profits, cash flow, the success of the enterprise.It is understood, of course, too much inventory in a warehouse or shelves facing obsolescence of products and the inability of its sales.While their numbers are too small lead to shortages and potential loss of customers.Any problem will cost the business money.That thorough analysis of stocks helps companies to shed much light on its performance.What effort is made to properly manage investment assets?It is necessary to categorize them into "dead", "slow", performance and sale.There is an unspoken rule - 80/20 - for different business situations.80 percent - sales, 20 per cent - of the turnover of stocks.
