Inventory Turnover Ross School of Business（存货周转罗斯商学院）.pdfVIP

Inventory Turnover The inventory turnover ratio is a common measure of the firm’s operational efficiency in the management of its assets. As noted earlier, minimizing inventory holdings reduces overhead costs and, hence, improves the profitability performance of the enterprise. Ideally the inventory turnover ratio would be calculated as units sold divided by units on hand. However, the financial statements themselves will only capture monetary valuations and hence external evaluation of inventory turnover must rely on the valuation metrics recorded under GAAP, namely: Inventory Turnover Cost of Goods Sold Cost of Goods Sold ( ) Average Inventory Beginning Inventory +Ending Inventory /2 While it is theoretically superior to √Reality Check – average the “snapshot” Computing Inventory Turnover balance sheet amounts of inventory in order to COGS Inventory Turnover benchmark Cost of Goods Average Inventory Sold for the entire year, 1,172,646 some analysts simply (1,060,164 +1,214,622) / 2 utilize the ending inventory 1.03 number for computational Hint: See 7 for financial statement data. expediency – a minor inaccuracy for firms with relatively static year-to-