Why do inventory turnover ratios fluctuate?

Cost Variations: The inventory turnover ratio is based on the cost of goods sold, which may fluctuate due to changes in production costs, raw material prices, or currency exchange rates. These fluctuations can impact the accuracy and comparability of turnover ratios over time.

What happens if a retail company reports a low inventory turnover ratio?

If a retail company reports a low inventory turnover ratio, the inventory may be obsolete for the company, resulting in lost sales and additional holding costs. Inventory turnover ratio is an efficiency ratio that measures how efficiently inventory is managed.

What is a low inventory turnover ratio?

Inventory turnover measures how often a company replaces inventory relative to its cost of sales. Generally, the higher the ratio, the better. A low inventory turnover ratio might be a sign of weak sales or excessive inventory, also known as overstocking.