Inventory Turnover Ratio

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This ratio shows the way a company uses its accounts receivable. The number of days in a given period needs to be multiplied by the average outstanding accounts receivable amount to get this ratio. The product is then divided by the total net credit sales during the given accounting period.


The cost of goods sold (COGS) is divided by the average balance in inventory to calculate the inventory turnover ratio. The average of the beginning and ending balance of inventory is taken to calculate the average balance in inventory. If this ratio is high, it means that the inventory levels are inadequate. Conversely, if the ratio is low, then it shows that the inventory venezuela phone number list levels are exceedingly high.

Understanding the Working Capital Cycle
It is also important to understand the working capital cycle of a company for efficient working capital management. This cycle measures the time a company takes to convert its current assets into cash. Here is a look at its formula:

Working Capital Cycle in Days = Inventory Cycle + Receivable Cycle – Payable Cycle

Shortcomings of Working Capital Management
Strong working capital management shows that an organisation has adequate capital to operate and flourish. However, it only considers short-term assets and liabilities. Long-term financial health and solutions for a company are often ignored in the process.