This is a measurement of how quickly a business is using its Inventory or Work In Progress (WIP).  

It is calculated as follows: Annual Cost of Goods Sold / Inventory / 365

Where there is a low rate of inventory turnover this may indicate that the business has a poor purchasing system.  However, it may mean that the company is taking advantage of bulk discounts.

If it has a high rate of inventory turnover this may indicate that the business has a highly controlled and well managed inventory / WIP system.  However, it may also indicate that the business has poor cash flow and under strain.  They may also be missing out on discounts from ordering in bulk.

If you would like to discuss further please contact us:
McNamara and Co - Chartered Accountants, located minutes from the Melbourne CBD
www.mcnamaraandcompany.com.au/contact-us
Phone +61 3 9428 1062
Email admin@mcnamaraandco.com

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