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Inventory Turnover

Autor:   •  March 8, 2011  •  Essay  •  384 Words (2 Pages)  •  1,946 Views

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Return on capital employed measures the overall performance of the company and reflects the relationship between the profits earned by a company and the size of the company. From the ratios of return on capital employed for respectively years are high, it showed that the BAT group is efficiently managing the business in generating profits from the resources available.

Inventory turnover indicates that how many times inventory is being turned over in a year. Inventory turnover in 2009 has showed that 11.10 times the inventory is being turned over in a year. Higher inventory turnover indicates higher inventory efficiency. The values of the inventory-turnover ratios are lower in FY2008 and FY2007 indicate that the management team less efficient in managing inventories. Inventory turnover can also be reversed to find the number of days of inventory that has been held in the warehouse. Inventory turnover in FY2009 is lower indicates higher efficiency as the more quickly inventory is being sold. Although the inventory turnover is more frequently calculated by sales divided by inventories, cost of goods sold may be more accurate because sales are recorded at market value, while inventories are usually recorded at cost.

Account receivable turnover measures the ratio of the number of times that accounts receivable amount is collected throughout the year. Higher account receivable turnover indicates higher efficiency of the company. Account receivable turnover is declined by 4.5 times in 2008 implies that BAT group should re-assess its credit policies in order to ensure the timely collection of imparted credit that is not earning interest for the group. The declining accounts receivable turnover ratio indicates a collection problem, part of which may be due to bad debts. In 2009, the ratio has increased by 7.78 times implies either that the company operates on a cash basis or that its extension of credit and collection of accounts receivable is efficient.

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