Inventory Turnover
Inventory turnover is a measure of how quickly a company sells its inventory during a given period. It is calculated by dividing the cost of goods sold (COGS) by the average inventory for the period. The higher the inventory turnover, the more efficiently a company is managing its inventory. A low inventory turnover indicates that a company is not selling its inventory quickly enough, which can lead to higher costs and lower profits.
History of Inventory Turnover
Inventory turnover has been used as a measure of efficiency since the early 20th century. It was first used by the U.S. Department of Commerce in the 1920s to measure the efficiency of manufacturing companies. Since then, it has become a widely used metric for evaluating the performance of companies in a variety of industries.
Inventory turnover is an important metric for companies because it helps them understand how quickly they are selling their inventory and how efficiently they are managing their inventory. It is also a useful tool for investors, as it can help them assess the financial health of a company.
Table of Comparisons
| Company | Inventory Turnover |
|---|---|
| Company A | 2.5 |
| Company B | 4.0 |
| Company C | 6.0 |
Summary
Inventory turnover is a measure of how quickly a company sells its inventory during a given period. It is an important metric for companies because it helps them understand how efficiently they are managing their inventory. It is also a useful tool for investors, as it can help them assess the financial health of a company. For more information about inventory turnover, you can visit websites such as Investopedia, The Balance, and Investing Answers.
See Also
- Gross Margin
- Days Sales Outstanding
- Return on Investment
- Working Capital
- Inventory Management
- Cost of Goods Sold
- Average Collection Period
- Inventory to Sales Ratio
- Inventory Carrying Cost
- Inventory Control
