![]() ![]() Inventory Turnover Ratio is the ratio of Cost of Goods Sold / Average Inventory during the same time period. So, knowing the importance of Stock Purchasing and sales is relevant. That’s why the sales and Purchasing departments must be in touch with each other. Sales must be matched with inventory purchases otherwise, the inventory will not turn effectively, making Inventory void. If the company fails to sell these greater amounts of inventory, it will incur storage costs and other holding costs. If many inventories are purchased during the year, the company will have to sell its greater amounts of inventory to improve its turnover. The first main component is stock purchasing. The Inventory Turnover Ratio plays a very important role because total turnover depends on two main performance components: stock purchasing and sales. You can calculate the inventory turnover ratio by dividing the cost of goods sold for a particular period by the average inventory for the same period of time. ![]()
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