Turnover 

In accounting turnover is also called as inventory turnover, is the amount or number of times the inventory is replaced and sold within a given time period maybe a year.  Low turnover could shows that stores are acquiring surplus of inventory which means that they are experiencing several problems whereas a high turnover shows that a store is doing quick business. Inventory turnover is generally used to determine the financial health of the business organizations small and big and the business owners might periodically examine their inventory turnover in order to see how they are doing. 

Generally, two different formulas could be used to arrive at the inventory turnover numbers. The first formula is that dividing cost of sales by inventory. But the this formula could b imperfect sometimes because the inventories are generally expressed in wholesale price or value but not in retail price that means the result of this formula will be tilted.  This is the main reason that most of the people use another formula i.e. dividing the cost of goods sold (indicating the price or amount paid by the business organization) by the average inventory.  By using average inventory it avoids skewed results which are caused by the seasonal fluctuations such as radical differences in the inventories that appear in November and December in several parts of the world.

At times, the rate is low since a firm is stocking up on goods in the preparation for the large event, in that case the business organization might be perfectly healthy in spite of the fact which it has a lower inventory turnover ratio. On the other hand, enormously high rates could serve as an alert that a store might not be keeping sufficient supplies in the stock, and the consumers can be increasingly frustrated with a lack of choices caused by the poor inventory management.

Questionnaire:

• What is turnover?
• How to calculate the inventory turnover.