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Inventory TurnoverInventory Turnover ratio, is simply the turnover of the company divided by its stocks. The formula is the following:
= turnover / average stocks
It should always be compared against the average price of the ratio for the sector.
A low Inventory Turnover suggest poor sales and/or high investment in inventory - which is non-profitable and risky.
A high ratio implies either strong sales or ineffective buying.
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