Knowing Your Assets
We have discussed the importance of inventory control and careful monitoring of Accounts Receivable. There are two ratios commonly used to help you monitor these two critical assets: Inventory Turnover (Inventory Utilization) Ratio and Average Collection Period Ratio.
Inventory Turnover (Inventory Utilization) Ratio looks at how quickly Inventory is sold and replaced. Average Collection Period Ratio looks at how quickly a company is collecting money from customers who use store credit.
You can quickly test your inventory turnover using a ratio that is called Inventory Turnover Ratio or Inventory Utilization ...