![]() In other cases, abnormally high inventory turnover ratios can signal insufficient inventory with a risk of stock outs.Ĭalculating inventory turnover ratio and making adjustments in your inventory management practices can help you notice and address issues such as obsolete inventory and stockouts. For example, if a company’s inventory turnover ratio is lower than the industry average, they may need to carry less inventory. ![]() This metric can help shed light on the impacts of poor inventory management that may not have been noticeable before. Learning how to calculate inventory turnover ratios and apply your findings to your business operations moving forward can help you make critical decisions. Why Is Inventory Turnover Ratio Important? This financial metric, also called stock turnover or inventory turnover rate, can shed light on how effectively a company is utilizing its assets (inventory) to generate sales. Inventory turnover ratio refers to how quickly a company’s inventory is sold and replaced within a set period of time, such as one year or one month. This important metric can help businesses to better understand and, if needed, shift their approach to inventory management. One such efficiency ratio is the inventory turnover ratio. As a whole, metrics like efficiency ratios can help businesses to assess their own performance in using assets effectively. One of the best strategies for strengthening your bottom line and boosting efficiency within your business is to take a closer look at inventory management data. ![]()
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