inventory ratio

This query is : Resolved

Querist : Anonymous

Querist : Anonymous (Querist)

21 July 2010 Hi
Respected Members

Can any one Solve my following problem?

1. 1st year inventory turnover ratio is 12%
2. 2nd year inventory turnover ratio is 13%
3. 3rd year inventory turnover ratio is 11%

Can any one solve my problem like what above ratio want to say year wise?

OR

Whether inventory ratio should be high or low year wise for good business carried on

CMA. CS. Sanjay Gupta

CMA. CS. Sanjay Gupta (Expert)
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21 July 2010 Inventory turnover ratio shows that every rupee invested in stock has been used to achieve more sales. A firm with high ratio can sell even at a low margin.A higher
ratio indicates that the firm is making higher sales and that it’s storage cost is low. A low turnover ratio would indicate unsold stock and a weak sales strategy.

The above figure indicates performance of company was best in 2nd year.

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Bhaskaran Chackrapani Warrier

Bhaskaran Chackrapani Warrier (Expert)
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21 July 2010 Inventory ratio is, generally , calculated by dividing the annual turn over by the average stock. A higher inventory turnover ratio means that you have less cash tied up in inventory to support a given level of sales.
Inventory ratio should be steady or high year wise other wise it is a bad sign regarding the progress of business.

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