Why is it important to control inventory turnover?
Inventory is the second largest expense in a business behind payroll. Companies pay close attention to inventory, as it impacts finances and operations.FactsCompanies with low inventory turnover usually have sluggish sales, high inventory and increased warehousing costs. A high inventory level means that the company has a low rate of return on the capital invested in the inventory.FeaturesThe inventory financial ratio–dividing cost of goods sold by the average monthly inventory on-hand–can help companies determine how well they are selling inventory.WarningCertain types of inventory may be subject to spoilage or obsolescence if held too long. Food products, electronics and holiday-themed items are typical inventory goods with a short shelf life.PotentialThe U.S. government taxes companies on the value of their unsold inventory at the end of each fiscal or calendar accounting year. Reducing inventory at low prices for year-end tax purposes may provide little profit for companies.Exper
