Inventory Turnover Ratio

Inventory turnover ratio:

Low inventory turnover ratio is a sign of inefficiency. Again, High inventory turnover ratio implies either strong sales or ineffective buying. Most often, a high inventory turnover means better liquidity. For our company, for the years 2012 -2014, the Inventory turnover ratio is slowly declining. For example- for 2014 , it dropped to 11.69 from 12.09 of 2013. Although the decrease value is small, this might be a warning sign for the company.

One thing to remember is that – if the result of the Inventory turnover ratio multiplied with gross profit margin is 100 percent or higher, then the average inventory is not too high

Days’ sales in Inventory:

Days’ sales in inventory is also known as DSI. Usually, the lower (shorter) the DSI the better. (Company name) during 2011 saw the highest DSI which was 47. The figure dropped the following year, and currently it seems to be remaining stable. The average DSI for the last three years is 30 days.

Receivable turnover:

For X company, the receivable turnover ratio of 10.13, was highest during 2011. The figured dropped the following year, rose again during 2013 only to drop again to 7.45 during 2014. The company should re-assess their credit policies so that things improve

Days sales in receivables:
The company does not show any particular pattern for the last five years in terms of their Days sales in receivable. The figures vary a lot, For example – for 2010 the figure was 54, it then dropped to 36 for 2011. The next two years were somewhat stable, the figures being 44 and 42 respectively, for 2012 and 2013. Again, 2014 saw a jump in the figure. For this year, the figure is close to 49 days.

Total ASSET turnover
Of the last five years, The total asset turnover reached its peak, during 2012. It was 2.41 during that year. For this year the ratio is around 2.21. The company seems to using their asset efficiently, but it is not clear how efficient they are compared to the entire market.