University of the People **We aren't endorsed by this school
BUS 4404
Nov 4, 2023
Uploaded by BailiffIce11081 on coursehero.com
Using words, not numbers, explain how an inventory turnover computation is performed, what it means, and what its use is. Please do the same for a receivable turnover computation. There are times when you find discounted prices on certain products on the store shelf. Some are on promotion, and some come free when you buy certain products. How does the company come up with such prices at varied times? They use inventory turnover calculations which informs pricing strategy and supplier relationship, and the product cycle. The turnover ration informs inventory management as well as sales and marketing department. Jenkins informs that "high ratio implies strong sales or insufficient inventory to support sales at that rate. Conversely, a low ratio indicates weak sales, lackluster market demand or an inventory glut." (2022) Inventory turnover is defined as "the rate that inventory stock is sold, or used, and replaced" (Jenkins, 2022) and is calculated by dividing cost of good sold by average inventory (Walther & Skousen, 2009) Inventory turnover ration is calculated within a specific period. This means it can be uses to calculate the inventory sold in a number of days. In order to get the best results, the company must be in control of it's stock or inventory control. Receivable turnover is "measures the efficiency with which a company is able to collect on its receivables or the credit it extends to customers" (Murphy, 2023). This is done annually, quarterly, or monthly in order to measure the receivables that were converted onto cash and the period. The it is calculated as Accounts Receivable Turnover = Net Credit Sales/Average Accounts Receivable. References Jenkins, A. (2022, August 9). Inventory Turnover Ratio Defined: Formula, Tips, & Examples . Oracle Netsuite. Retrieved from https://www.netsuite.com/portal/resource/articles/inventory- management/inventory-turnover-ratio.shtml#:~:text=Inventory%20turnover %20is%20the%20rate,lower%20one%20to%20weak%20sales . L. M. Walther & C. J. Skousen. (2009) Using Accounting Information . Bookboon.com. Retrieved from https://my.uopeople.edu/pluginfile.php/1767746/mod_page/content/11 /UsingAccInfo%20textbook%20link%2011.pdf Murphy, B, C. (2023, May 24). Receivables Turnover Ratio Defined: Formula, Importance, Examples, Limitations. Investopedia. Retrieved from https://www.investopedia.com/terms/r/receivableturnoverratio.asp#:~:t
ext=The%20receivables%20turnover%20ratio%20measures,a%20certain %20period%20of%20time .
Page1of 2
Uploaded by BailiffIce11081 on coursehero.com