Why is inventory turnover important?

It measures how hard your inventory investment is working. by Jon Schreibfeder How hard is the money you have invested working for you? You've probably been asked that question several times by stock brokers or "investment counselors." No, I'm not going to try to sell you mutual funds. This article isn't about how you are managing your personal investments. Instead, we are going to look at the performance of your company's largest asset: inventory. The concept of inventory turnover Say you sell $10,000 worth of a product (at cost) each year. Total revenue received from sales of the product is $12,500. If you bought the entire $10,000 worth of product on January 1, at the end of the year, you would have made a $2,500 gross profit. But do you have to buy the entire $10,000 of product at one time? What if you bought $5,000 worth on January 1. Then, just before running out of stock, you bought an additional $5,000 worth of the product using part of the revenues received from selling the ...  more