Inventory Turnover

Inventory Turn Over
Name
Institution

Inventory Turn Over
Inventory turn over refers to the frequency over which goods in a company are sold and replenished over a given period. The Inventory turnover formula is essential for a business. With the method, the organization can predict the number of days it can take to sell goods. Also, investors can make a wise choice before investing in a business idea by calculating the inventory turnover ratio.
For my client who has $1,000,000 and wants to buy products to sell, the best alternative that I would advise them to take that will provide the best return to their investment is the group of convenience stores. The main reason being that the turn over of bread and milk, which is at 1.7 days, is better than that of the caterpillar tractor, which is at 0.65 times a year. Even though the margins from the convenience store is low, the investment is still better because of the high inventory turn over which means that the sales are high. With high sales, more profit can get realized over a period. According to (“Inventory Turnover Definition & Example Investing Answers,” 2018), when goods are not moving in the company, money is tied up in the products, and this is risky because a drop in the market value of the products could lead to potential losses for the business. With the caterpillar tractor sales, the nature of the goods is a non-fast consumer good. Even though the profit margins are quite high, it is disadvantageous to the convenience stores because of low sales expected from the business.

In worst case scenarios, when the tractors become obsolete, for example, due to the introduction of a better model of the tractors, the company can experience huge losses from the inventory.

Reference
Inventory Turnover Definition & Example | Investing Answers. (2018). Retrieved from https://investinganswers.com/financial-dictionary/financial-statement-analysis/inventory-turnover-4803