In order to increase inventory turnover ratio for a company, it is important to understand the calculations that go into calculating the turnover ratio. Once this is achieved, a company can go about the necessary efforts to raise this ratio, increasing the overall inventory sold.
For example, Derek owns a retail clothing store which sells the best designer attire. Derek, an avid fan of fashion, has worked in the apparel industry for quite a while and is well suited for the operations of his company.
Still, Derek has a little to learn about the business of retail clothing. He has been studying the subject with passion and wants to grow his business. From his study he has realized that inventory turnover is the key to his business.
Derek first talks to his accountant for inventory turnover ratio analysis. This requires somewhat of an expert because the matter is more complicated than the abilities simple, web-based inventory turnover ratio calculator. His accountant comes up with a figure which Derek would like to increase.
Annual credit sales are $10,000 and inventory is $5,000
The inventory turnover is: 10,000 / 5,000 = 2 times
Derek decides, from this, that he needs to make some changes. He aligns a few strategies to move his products. First, he considers marking-down styles from the previous season as each season approaches. Similarly, he considers product give-aways with minimum transaction amounts. Derek considers the option of spreading contests and deals on social networking websites. He finishes his evaluation by finding ways to turn his extra inventory into a tax write-off.
Derek is pleased because he is applying his newly found skills and knowledge to better his business. Derek looks forward to the future.
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Inventory Turnover Ratio Analysis