Study Ton

Education and Writing Tips - Personal Blog

Warehouse Operations – Inventory Turnover

Inventory turnover is an accounting term used about the ratio that indicates the number of times an organization’s inventory is sold and replaced over a period. Inventory in such a case is the complete list of items or goods in stock. In the instance in which the turnover is low, it is the implication that the business is making weak sales and as such, has an excess of inventory and vice versa. Based on such an aspect, it is clearly evident that inventory turnover stands as a critical measure of a business’ performance, other than the aspect of it being the component used in the calculation of return on investment as well as profitability (Gaur, Fisher, & Raman, 2005). Furthermore, the faster the speed that a company sells its inventory at a profit the higher the turnover. Higher turnover in sales is only applicable in the case of the business making profits on every sale it makes (Demeter & Matyusz, 2011).

Inventory Turnover is a critical measure, most especially in the fact that it has different variations and alternatives. In a situation whereby a client has $1,000,000 and wants to make a purchase of a product for resale, it is important to check for the alternative that would provide the highest return on investment. The best alternative for a client with $1,000,000 between a group of convenience stores whose average turnover for milk and bread is 1.7 days with a 2% margin on sales and a caterpillar tractor sales outlet with average inventory turn being 0.65 time in a year and greater margins of 35% per sales dollar is caterpillar tractor sales outlet. The caterpillar tractor sales outlet sells the tractors for a higher margin profitability (35%) on every sale they make while equally having an average inventory turn of 0.65 times a year. Despite the low speed of inventory sale, the profits on the return are significantly higher, and as such a better alternative for better performance (Gaur, Fisher, & Raman, 2005).

Leave comment

Your email address will not be published. Required fields are marked with *.