Inventory Turnover and Cash Flow

The video tutorial explains inventory turnover, a key metric in retail and e-commerce, which measures how often a company sells and replaces its inventory over a year. It compares turnover rates between companies, outlines the calculation method, and provides a practical example. The tutorial also highlights issues with low turnover, such as low sales or overstocking, and discusses what constitutes a good turnover ratio across different retail categories.

What does inventory turnover measure in a business?

• The total number of products in stock

• The total sales revenue

• The number of times inventory is sold and replaced

• The profit margin of products

Why is inventory turnover an important metric for companies?

• It helps in determining the company's market share

• It shows the company's annual revenue

• It measures the company's employee productivity

• It indicates how efficiently a company manages its inventory

How is inventory turnover calculated?

• Average inventory divided by sales

• Sales divided by total inventory

• Cost of goods sold divided by average inventory

• Total revenue divided by cost of goods sold

What does a higher inventory turnover indicate?

• The company is not selling enough products

• The company is overstocked

• The company has a high profit margin

• The company is efficiently managing its inventory

What is the impact of a high inventory turnover on a company's profits?

• It increases profits by allowing more sales cycles

• It has no impact on profits

• It reduces profits

• It leads to higher inventory costs

What is the significance of the cost of goods sold in the inventory turnover formula?

• It represents the total sales revenue

• It is used to calculate profit margins

• It is divided by average inventory to find turnover

• It indicates the company's market share

What is the impact of a high inventory turnover on cash flow?

• It reduces cash flow

• It frees up cash for other investments

• It ties up cash in inventory

• It has no impact on cash flow

In the given example, what was the inventory turnover for the company?

• 3 times

• 2 times

• 4 times

• 1.25 times

What is the formula to calculate average inventory?

• Ending inventory minus beginning inventory

• Beginning inventory plus ending inventory divided by two

• Beginning inventory minus ending inventory

• Total sales divided by cost of goods sold

What does an inventory turnover of 1.25 times indicate about a company's inventory management?

• The company is efficiently managing its inventory

• The company is overstocked

• The company has a high profit margin

• The company is not selling its inventory quickly enough