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. Inventory turnover ; 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, 2023). 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). Receivable turnover ; 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).
Reference Walther, L.M. & Skousen, C.J. (2009). Using Account Information. BookBoon: Ventus Publishing ApS. http://my.uopeople.edu/pluginfile.php/56304/mod_page/content/7/Usin gAccInfo.pdf Boundless. (February 18, 2023). Boundless Finance. https://www.coursesidekick.com/finance/study-guides/boundless- finance Fernando, J. (March 27, 2023). Inventory Turnover Ratio: What It Is, How It Works, and Formula. https://www.investopedia.com/terms/i/inventoryturnover.asp Murphy, C. B. (May 24, 2023). Receivables Turnover Ratio Defined: Formula, Importance, Examples, Limitations. https://www.investopedia.com/terms/r/receivableturnoverratio.a sp
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