Inventory Turnover

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5 Terms

1
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What is inventory?

Inventories are the raw materials, work-in-progress and finished goods held by a business to enable production and meet customer demand

2
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What are examples of inventory?

  • Raw Materials and Components

  • Work in Progress

  • Finished Goods

3
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What is inventory turnover?

How many times does a business replace its inventory each year (by turning it into sales)

4
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What is the equation?

Cost of Goods Sold (ÂŁ)/ Average Inventories Held (ÂŁ)

5
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How should you interpret inventory turnover?

  • Look for changes from one year to another (and compare with other similar businesses)

  • A fall in inventory turnover might suggest a buildup of slow-moving or obsolete inventory

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