On the flip side, a lower inventory turnover ratio suggests poor sales and marketing operations and impact, inaccurate demand forecasting, and, ultimately, poor inventory management. What does lower inventory turn over ratio indicate? This means your sales and purchases data needs to be analyzed more closely, and errors have to be resolved efficiently to reach an accurate number. How? If your inventory gets sold out before the calculated day sales of inventory ratio (on average), you do not necessarily have an accurate sales forecast. But, here is the deal - if the ratio reaches too high according to your industry standards, it can be seen as a cautionary indication. When you see it from the cost perspective, higher ratios mean lesser investment in storage space and inventory ground management tasks and staff. Along with this, the demand for your product is also high. This also indicates a profitable sales and marketing operation and performance of the company. So, if your business has a higher inventory turnover ratio, it means that your business is able to sell out all of its inventory. What does high inventory turn over ratio indicate? The real competition and influential decisions would come from comparing your inventory turnover ratio with your competitor’s. Not all organizations would have the same ratio, so your competition is not with other industries. Along with calculating the ratio, the necessary element is comparison to make meaningful decisions out of it. Inventory turnover ratio helps a business to build an understanding of how to manage its inventory.
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