Inventory Turnover
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5 Terms
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
What are examples of inventory?
Raw Materials and Components
Work in Progress
Finished Goods
What is inventory turnover?
How many times does a business replace its inventory each year (by turning it into sales)
What is the equation?
Cost of Goods Sold (£)/ Average Inventories Held (£)
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
