First, the concept of inventory turnover:
Inventory turnover rate refers to the ratio of the company's operating costs to the average inventory balance in a certain period, which can reflect the inventory turnover rate, so as to see whether the inventory liquidity and inventory capital occupation are reasonable. A good inventory turnover rate represents a company's efficient use of funds and strong short-term solvency.
In the vernacular, it is the average number of times a company sells goods (the number of times it sells inventory) in a certain period, which can be used to confirm the operating efficiency of this company and reflect the operating efficiency of various departments.
Two. Calculation formula of inventory turnover rate:
Inventory turnover rate (times/year) = operating cost ÷ average inventory.
Average inventory = (beginning inventory+ending inventory) ÷2
Inventory turnover days =365 days ÷ inventory turnover rate
Operating cost: the direct cost of selling inventory, but excluding indirect costs, such as sales staff costs.
Average inventory: because inventory always changes, it should be calculated by the average of inventory at the beginning and end of the period.
Inventory turnover days: it takes an average of several days for the inventory to be sold out, which represents the time for the company to sell products.
Significance of inventory turnover rate and matters needing attention in analysis;
First, the significance of inventory turnover rate:
High inventory turnover rate means that the company has high capital utilization efficiency, fast sales speed, less loss due to price drop, and more money to circulate and use, so it can evaluate a company's operating ability.
The inventory turnover rate is low, and the company can't sell too much inventory, which will increase the probability of inventory depreciation and damage, make the capital backlog and cause problems in operating performance.
Second, the inventory turnover rate analysis matters needing attention:
1, the sales characteristics of each industry are different, and the reasonable inventory turnover rate among industries is also different. It is meaningful to compare the inventory turnover rate with the same industry or with previous companies.
2. Some companies are "not suitable" to measure inventory turnover, such as finance and construction. The financial industry is because their biggest inventory is money (such as banks and insurance companies); Because land is "inventory", it is normal for the construction industry to have high inventory and low inventory turnover rate, so these two industries should not be measured by inventory turnover rate.
Companies that are "suitable" to be measured by inventory turnover rate include manufacturing, electronics and semiconductor industries. These companies will lose a lot as long as their inventory falls, so it is appropriate to measure their operating quality with inventory turnover rate.
3. Retail, department stores, online shopping and other enterprises can also use inventory turnover rate to evaluate. It should be noted that each enterprise's business model, operating cost calculation and inventory confirmation rules are not necessarily the same, and not every company's data is worthy of reference.