Using words, not numbers, explain how an inventory turnover computation is
performed, what it means, and what its uses i
Inventory turnover is the term used to describe the ratio of stock to sales. It
serves as an indicator of how well an organization maintains its inventory.
Calculating the annual rate of inventory turnover is possible by dividing the
ending inventory by the starting inventory. An inventory turnover calculation
calculates how often a product needs to be sold before being refilled.
The best way to determine how well an organization's inventory
management system is performing is to calculate inventory turnover.
Ineffective inventory control is generally indicated by a high inventory
turnover rate. A company that has a low inventory turnover probably buys
more products than it sells. The opposite is true for a company with a high
turnover of inventory.
Describe the steps involved in calculating a receivable turnover, what it
represents, and how it is used
To determine how much cash is available for the company to pay its debts,
the accountant computes the turnover of receivables. The receivable
turnover computation, which determines how much money will be available
to pay creditors, is used to judge a company's capacity to meet its
obligations. By dividing the total current liabilities by the total current assets
of the company, the amount is determined.
However, the computation of receivable turnover does not guarantee that a
business will be able to pay its debts. However, it is a trustworthy indication
that a company is not in danger. When determining the receivable turnover,
it's important to understand the differences between the accounts payable,
accounts receivable, and current liabilities. You should also be aware of the
differences between the accounts for current liabilities, accounts payable,
and accounts receivable. You must be aware of the differences between
these accounts to calculate the receivable turnover appropriately.
Reference:
Hill, R.A. (2010). Strategic Financial Management: Part II - Finance & Wealth
Decisions.
