INVESTIGATION OF FINANCIAL PERFORMANCE PARAMETER OF INVENTORY TURNOVER RATIO, DAY SALES INVENTORY AND WORKING CAPITAL RATIO IN STEEL INDUSTRIES
This abstract provides a brief overview of three important financial ratios used in inventory management: the inventory turnover ratio, day sales of inventory, and inventory to working capital ratio. These ratios help organizations evaluate the efficiency and effectiveness of their inventory management practices, thereby enabling better decision-making and optimizing financial performance. The inventory turnover ratio measures the number of times a company sells and replaces its inventory within a specific period. It is calculated by dividing the cost of goods sold by the average inventory value. A high inventory turnover ratio indicates efficient inventory management, while a low ratio may imply excess inventory or slow sales. This ratio is useful for identifying potential inventory-related issues and optimizing purchasing and production strategies. Day sales of inventory is a metric that indicates the average number of days it takes for a company to convert its inventory into sales. It is computed by dividing the average inventory by the daily cost of goods sold. A lower number of days implies faster inventory turnover and more effective inventory management. Tracking day sales of inventory helps companies identify trends, assess operational efficiency, and manage inventory levels to meet customer demand. The inventory to working capital ratio is a measure of the proportion of a company's working capital that is tied up in inventory. It is calculated by dividing the average inventory by the working capital. A higher ratio may suggest that a significant portion of working capital is allocated to inventory, potentially affecting liquidity and financial stability. Monitoring this ratio helps companies balance inventory investment with available working capital, ensuring optimal financial health. These paper focus on the three ratios provide valuable insights into inventory management. The inventory turnover ratio gauges the efficiency of inventory utilization, day sales of inventory measures the speed of inventory turnover, and the inventory to working capital ratio assesses the proportion of working capital allocated to inventory. By monitoring and analysing these ratios, businesses can make informed decisions to enhance inventory management, improve cash flow, and optimize overall financial performance.
Inventory Management, Ratio Analysis, Inventory Turnover Ratio