Answer
Inventory turnover measure is a representation of how quickly inventory is sold in the enterprise. Generally, the higher the inventory turnover, the better the entity is performing. The more times the inventory turns over, the smaller the net margin can be to earn an appropriate total profit and return on assets.
Work Step by Step
For instance, an entity can price its goods lower if it has a high inventory turnover. A company with a low profit margin, such as 3%, can earn as much as a company with a high net profit margin, such as 30%, if its inventory turnover is often enough. For example, a grocery store with a 3% profit margin can earn as much as a shoes store with a 30% profit margin and an inventory turnover of 1 if its turnover is more than 10 times.
