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Calculatinginventory
turnover
http://www.business.gov.au/businesstopics/sellingproductsand
services/managinginventoryorstock/Pages/calculatinginventory
turnover.aspx
Inventoryturnoverishowquicklyyousellyourinventory.
Understandingyourinventoryturnovercanhelpyoudecidehow
muchinventorytoorder.Thiscanhelpyoumanageyourinventory
costsandthecashflowofyourbusiness.
Inventoryturnover=Costofgoodssold/(0.5xOpeninginventory
+0.5xClosinginventory)
Ifyouhaveaninventoryturnoveroftwo,forexample,thenyou
sellallyourinventorytwiceperyear.
Inventoryturnoverratioexamples
Samhasabusinessthatsellspensandwantstocalculatehis
inventoryturnovertocheckifhestocksenoughpens.
Samknowshiscostofgoodssoldis$50000.Atthestartofthe
financialyear,hehad$6000ofinventory.Attheendofthe
financialyear,hehad$14000ofinventory.
Usingtheinventoryturnoverformula,hecalculateshisinventory
ratioas4.5,whichmeansheturnsoverhisinventory4.5timesper
year.Hethinksthisisneithertoohighorlow,sodecidesnot
toincreasethenumberofpensthanhecurrentlystocks.
Tipswhencalculatingyourinventoryturnover
ratio
Perishableproductsshouldhaveahigherturnoverratiothannon
perishables.Youshouldntsellperishableproducts,suchasmilk,
aftertheygooutofdate.Becauseofthis,theyshouldhavea
higherinventoryturnoverratiothannonperishableproductssuch
asbricks.
Lowinventoryturnoverratioscanindicateyourestockingtoo
muchinventory.Stockingtoomuchinventorycanmeanyoure
spendingtoomuchonstoragecosts.Considerstockingless
inventoryifyouhaveaverylowinventoryturnoverratio.
Inventoryturnoverratiobenchmarks
Benchmarkingyourinventoryturnoverratioisevaluatingyour
inventoryturnoverratiobycomparingitwithastandard.
Youcanusebenchmarkingtocompareyourinventoryturnover
ratiowiththeinventoryturnoverratiosofyourcompetitors.You
canalsouseittocomparetheinventoryturnoverratiosofdifferent
productsyouselltoworkoutifyouarestockingenoughortoo
muchoftherightproducts.
Checkouttheseexamples:
Janesellssmartphonesandhasaninventoryturnoverratiooftwo.
Shefindsouthercompetitorshaveaninventoryturnoverratioof
four,sohersisonly50%ofhercompetitors.Shethinksthisistoo
low,sincehercompetitorsmaybestockingmorepopular,upto
datesmartphonesthanshedoes.
Jimsellsfourkindsofdolls.Hisaverageinventoryturnoverratio
is0.5.Onetypeofdollhesellsonlyhasaninventory0.1though,
whichisfivetimeslessthanhisaverage.Hethinksthismeansthis
dollislesspopular,soheshouldstocklessofit.
2. Total debt-total assets ratio- ISSUE IN ACTIVITY 1.5
Itisthemeasureofefficiencywithwhichacompanyisusingitsassetsto
generatesalesorrevenue.
The concept is determining how well a company is utilizing its
assets to generate sales.
The higher this ratio, the smaller the investment required to generate sales revenue
and, therefore, the higher the profitability of the company
Generally speaking, the higher the asset turnover ratio, the better the company is
performing, since higher ratios imply that the company is generating more revenue
per dollar of assets.
5.Breakevenpoint=Totalfixedcosts/Averagepriceofeach
product/serviceAveragecostofeachproduct/servicetomakeor
deliver)
http://www.business.gov.au/business-topics/tax-financeinsurance/business-finances/Pages/analyse-your-finances.aspx