Hello Professor Thaliya, and classmates.
This week's discussion forum; I will explain in words; how an inventory
turnover computation is performed, what it means, and what its use is. Then,
I will explain a receivable turnover computation as well.
; the rate at which inventory stock is sold, used, and
replaced is referred to as inventory turnover. If we divide the cost of goods
sold by the average inventory, we will get the inventory turnover ratio,
(COGS / The average inventory). A larger ratio indicates good sales, whereas a
lower ratio indicates down sales. (Walther, & Skousen, 2009), & (Boundless,
Inventory turnover measures how quickly a business sells inventory, and the
term 'full inventory turnover' refers to a business selling all of the inventory it
has acquired, minus any items lost due to damage or shrinkage. Likewise, if
inventory turnover decreases, it means that the company's sales are weak
and inventory or production is increasing. Vice versa, the rise in the rate
reflects the selling power of the company. (Fernando, 2023).
; Receivables Turnover Ratio is a measure of accounting
used for evaluating a company's ability to offer credit and recover debts. The
receivables turnover ratio is an activity ratio that assesses how well a
business uses its acquisitions. To find the receivable turnover computation,
we divide (net Annual Credit Sales on average accounts receivables. (Walther,
& Skousen, 2009), & (Boundless, 2023).
One of the key elements to knowing a high receivables turnover rate is how
effective the company is. The receivables turnover ratio shows the company's
strength in managing its assets and the amounts owed to third parties. The
company collects these payments because the company has customers and
enjoys effective management and reliability from customers. Companies use
the receivables turnover rate to measure the effectiveness of collecting their
receivables funds, and this management helps the receivables turnover rate
show how efficient companies are with all receivables. Customers may owe
this money, which indicates the company's efficiency in collecting money
from customers. (Murphy, 2023).