| Inventory Turnover | |
 A ratio that shows how many times the inventory of a firm is sold and replaced over a specific period.  |
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 Although the first calculation is more frequently used, COGS may be substituted because sales are recorded at market value while inventories are usually recorded at cost. Also, average inventory may be used instead of the ending inventory level to minimize seasonal factors. This ratio should be compared against industry averages. A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying. High inventory levels are unhealthy because they represent an investment with a rate of return of zero. It also opens the company up to trouble in the case of falling prices. |
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 Inventory Valuation For Investors: FIFO and LIFO - We go over these methods of calculating this component of the balance sheet, and how the choice affects the bottom line. Measuring Company Efficiency - We look at a retailer's inventory turnaround times, its receivables as well as its collection period. |
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