X Expert Source Keila Hill-Trawick, CPAĬertified Public Accountant Expert Interview. A low inventory turnover isn't always bad and a high inventory turnover isn't always good. However, it's very important to remember that context is important in these sorts of comparisons. Because of this, a business's inventory turnover can be used to gain clues about how efficiently a business is operating, especially compared to competitors. Usually (though not always) businesses want to sell their inventory quickly, rather than slowly. Use your inventory turnover as an approximate measure of efficiency. In this case, our average inventory is ($20,000 + $30,000 + $40,000)/3 = $30,000 - a little higher (and more representative of the actual average) than before. For instance, let's say we also use a point from the exact middle of the year with a value of $40,000. However, just one additional data point can give us a different picture. Using the basic method above, we would get an average value of $25,000.
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