Efficiency ratios
Rate of inventory turnover
Rate of inventory turnover is an efficiency ratio which determines how quickly a firm goes through its stock.
A high stock turnover is preferable as this means stock is selling 鈥 marketing and purchasing are doing their jobs properly!
If stock turnover is low then this means stock is not being bought and there may be many reasons such as:
- poor quality of goods
- poor customer service
- poor advertising
The formula is: Cost of sales:Average inventory