What Is Inventory Turnover?

Inventory turnover rate, also known as inventory turnover rate, is the ratio of a company's operating costs ( cost of goods sold ) to the average inventory balance over a period of time. It is used to reflect the turnover speed of the inventory, that is, the liquidity of the inventory and the rationality of the inventory capital occupation, to promote the enterprise to ensure the continuity of production and operation, improve the efficiency of the use of funds, and enhance the short-term debt repayment ability of the enterprise. Inventory turnover rate is a supplementary explanation of the turnover rate of current assets. It is a comprehensive indicator to measure the company's production, inventory management level and sales recovery ability.

Basic Information

Chinese name

Inventory turnover

Foreign name

Inventory turnover ratio

Definition

Cost of goods sold

Inventory turnover is the measurement and evaluation of various links such as the purchase of inventory, the production of products, and the recovery of sales.

in

commodity

(1) When calculating the inventory turnover rate, use "sales revenue" or "cost of sales" as the turnover amount, depending on the purpose of the analysis. If the purpose of the analysis is to judge short-term solvency, sales revenue should be used. If the purpose of the analysis is to evaluate inventory management performance, cost of sales should be used.

(2) The inventory turnover days are not as low as possible. For example, reducing the amount of inventory can shorten the number of days of turnover, but may adversely affect normal business activities.

(3) Pay attention to the relationship between payables, inventory and accounts receivable (or sales).

(4) Attention should be paid to the proportion of the finished products, self-made semi-finished products, raw materials, products and low-value consumables that constitute inventory. Under normal circumstances, there is a certain proportional relationship between various types of inventory. If there is a significant and significant change in the proportion of a certain type, it may indicate that there is a certain problem. For example, a large increase in finished products and a decrease in other items are likely to result in poor sales and slowed down the production rhythm. At this time, the total inventory balance may not have changed significantly, and it has not even caused a significant change in inventory turnover ^[2] .