A measure useful in evaluating efficiency in the management

A measure useful in evaluating efficiency in the management of inventories:

A.Ratio of Net Sales to Assets

B.Rate Earned on Total Assets

C.Ratio of Fixed Assets to Long-term Liabilities

D.Inventory Turnover

Solution

INVENTORY TURNOVER A measure useful in evaluating efficiency in the management of inventories is Inventory Turnover The forlumla for Inventory Turnover is = Cost of Goods Sold / Average Invetory Where Average Invetory = (Opening Inventory + Closing Inventory )/2 Cost of Goods Sold = Opening Stock+Purchases-Closing Stock Generally Company Profit or Loss depends on the Invetory Value at the year end. Hence the mainataince of the Inventory is crucial in any company. Inventory Turnover Advanatages: 1 Inventory Turnover measures how many times , inventory sold during the year. 2 Inventory Turnover useful in evaluating efficiency in the management of inventories. 3 Inventory Turnover useful in company can effectively sell the inventory it buys. 4 Inventory Turnover useful ti find the amount inventory company can turn in to liquid cash. This is required by the creditor and Bankers.