What is Inventory Turnover?

Turnover is a calculation of how fast a firm conducts its operations. It is generally used to determine how fast a firm sells off their inventory and take money from their account receivable. A company's total revenue can also be referred to as its overall turnover.

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What is Turnover in Operations?

Accounts receivable and inventory are the two biggest assets which a corporate business can own. Both of them are built on the foundation of huge capital investments, and it wouldn't be a wise idea to overlook how a business handles cash collection. In calculating how a business collects cash from these two assets, fundamental analysts and investors make use of the turnover ratio; a metric which is also useful in examining the future value of an investment. Important Details about Turnovers

• Turnover refers to how fast a firm conducts their operations
• In portfolio management, turnover is the percent of an investment sold in a given period of time
• Corporate turnover focuses on the ratio of account receivables to inventory products

What is the Account Receivable Turnover?

This refers to the total amount of outstanding customer invoices at any period. This amount is usually measured in dollars. Let us assume that credit sales are not immediately paid in cash, then we can say that the account receivable turnover formula is the volume of credit sales per average account receivable, Here, the average account receivable is the median receivable balances in a given period. Account receivable turnover evaluates your payments rates compared to credit sales. The general idea of this formula is to maximize sales and reduce credit sales so as to avoid debt or to increase profit. A company with $20,000 in credit sales and $5000 in paid purchases is said to have a turnover rate of four using the average account receivable formula.

What is Sales Turnover?

Sales or inventory turnover can be calculated by dividing sales by average inventory. Also, companies can choose to use an alternative method which involves using the cost of goods sold (COGS), rather than the sales amount. The goal of this method is to help businesses make better choices on manufacturing and other operations. Each business owner desires to maximize the amount of products sold and minimize the amount of products they have in the warehouse. Thus, returns from inventory sales are moved to an expense account. Let us assume that a company's total sales for a month is $80000, and $5000 is carried into the inventory, then we can say that the turnover rate is 16, which implies that this company sells all its products sixteen time per year. Sales turnover assists investors in making decisions on the risk level of investing operation capital into a company.