Can you have negative turnover

What does this mean? That Company B is doing a better job of parts inventory management. A low inventory ratio could mean that sales and purchasing are out of sync. Sales may be good, but purchasing may be acquiring too much inventory, in turn tying up too much capital and incurring other costs associated with holding inventory. A high ratio can be good, as it can mean that sales are good and inventory levels are well matched with the sales.

It is also possible for it to be bad, however, if the cause is that more orders are coming in than there is inventory to fill them, resulting in backorders. In addition, a good inventory turnover ratio in one industry may not be a good ratio for another. Some items, such as cars, take longer to sell than others, such as food.

To assess whether your turnover rate is positive or negative, you should always compare it to the average for your industry. To calculate an accurate inventory turnover ratio, you will need accurate data.

Cooperation between purchasing and sales is essential for having a good turnover ratio. Financial Ratios. Tools for Fundamental Analysis. Financial Statements. Your Privacy Rights. To change or withdraw your consent choices for Investopedia. At any time, you can update your settings through the "EU Privacy" link at the bottom of any page. These choices will be signaled globally to our partners and will not affect browsing data. We and our partners process data to: Actively scan device characteristics for identification.

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Inventory is one of the biggest assets a retailer reports on a balance sheet. This measurement shows how easily a company can turn its inventory into cash, which is important for an investor thinking about investing in your business.

This metric is also important to creditors. Creditors are usually interested in this because inventory can be put up as collateral for loans. Banks want to know that this inventory will be easy to sell for cash. Now, inventory turns vary from one industry to the next. For example, the apparel industry has one of the highest turn averages among all industries. If this was a real example, this would show that Mel has bad inventory turnover.