What is inventory turnover, Financial Management

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What is Inventory turnover

The shortcoming of this ratio is that average calculation based on beginning and year-end inventory may not represent actual average in year. Other limitations in stock ratios are:

  • Inclusion of obsolete stock
  • Different stock valuation policies

Inventory turnover is reciprocal of inventory days

Cost of sales/Average inventory (number of times)

It demonstrates how quickly the inventory is being sold. It illustrates the liquidity of inventories, the higher the figure the quicker the inventory is sold.

 


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