It is important to achieve a high ratio, as higher turnover rates reduce storage and other holding costs. It is vital to compare the ratios between companies operating in the same industry and not for companies operating in different ...
For example, inventory is one of the biggest assets that retailers report. If a retail company reports a low inventory turnover ratio , the inventory may be obsolete for the company, resulting in lost sales and additional holding costs.
Low turnover implies that a company’s sales are poor, it is carrying too much inventory, or experiencing poor inventory management. Unsold inventory can face significant risks from fluctuating market prices and obsolescence.
Income Statement The Income Statement is one of a company's core financial statements that shows their profit and loss over a period of time. The profit or. . Average inventory is the mean value of inventory throughout a certain period. Note: an analyst may use either average or end-of-period inventory values.
It implies that Walmart can more efficiently sell the inventory it buys. In addition, it may show that Walmart is not overspending on inventory purchases and is not incurring high storage and holding costs compared to Target.
The ratio should only be compared for companies operating in the same industry, as the ratio varies greatly depending on the industry.