abhishreshthaa
Abhijeet S
It indicates the frequency of sales or inventory replacement.
If COGS is not known, use the net sales. If average inventory cannot be calculated, use only closing inventory. If the break up of inventory is given (ie Raw materials, WIP, finished goods) use only the finished goods in the denominator, stating the assumption.
Significance:
1. It indicates the rate at which goods are sold and replaced.
2. Helps in formulating the inventory policy by indicating whether investment in inventories is within limits
3. Indicates if capital is blocked in slow moving stocks.
Standard:
It is difficult to establish a standard since it differs from industry. Generally it is higher in FMCG industries and lower in capital goods or consumer durable industries. A high ITR indicates effective inventory management but may also mean inadequate inventory resulting in loss of sales. A low ITR indicates over investment in inventories or slackness in business. However, it may also be a result of over investment in inventory due to anticipation of rise in prices or fall in availability.
If COGS is not known, use the net sales. If average inventory cannot be calculated, use only closing inventory. If the break up of inventory is given (ie Raw materials, WIP, finished goods) use only the finished goods in the denominator, stating the assumption.
Significance:
1. It indicates the rate at which goods are sold and replaced.
2. Helps in formulating the inventory policy by indicating whether investment in inventories is within limits
3. Indicates if capital is blocked in slow moving stocks.
Standard:
It is difficult to establish a standard since it differs from industry. Generally it is higher in FMCG industries and lower in capital goods or consumer durable industries. A high ITR indicates effective inventory management but may also mean inadequate inventory resulting in loss of sales. A low ITR indicates over investment in inventories or slackness in business. However, it may also be a result of over investment in inventory due to anticipation of rise in prices or fall in availability.