Measuring The Inventory Turnover In Distributive Trade

The ability of rapid inventory turnover indicates the success of a company in the use of their investments in inventory as a major business asset of the trading company. The inventory turnover expresses the speed at which the trading company sells its inventories or how much turnover the average inventory generates in one year. Also, the inventory turnover indicates how many times during a year the trading company is able to sell the amount of merchandise that matches its average inventory. The inventory turnover reflects how frequently a company flushes inventory from its system within a year. The inventory turnover greater than one indicates that the average inventory is sold in less than one year or it generates more than one turnover in a year. The inventory turnover can be calculated in two ways: as the rat io of the cost of goods sold for the reporting period and the average amount of inventory for that time period or by dividing sales revenue for the reporting period by the average amount of inventory for that time period. Furthermore, these ratios of inventory turnover have dfferent meanings for different trading firms. Therefore, the authors of this paper will explore how the se ratios affect the success of the trading companies. It will be investigated whether replacing one ratio with another ratio affects the interpretation of the success of the trading companies. Moreover, the relationship between these two ratios and the rate of return called the return on assets (ROA) will be investigated. Trading companies are divided according to the criterion of their size (large, medium-sized and small) and according to the criterion of the type of merchandise they sell (specialized and general consumer goods). The study included 28 large t rading companies, 30 medium-sized trading companies and 22 small trading companies, which altogether make a total of 80 companies from the Republic of Croatia . The data used in the study are based on the financial and accounting indicators for the year 2008 and the year 2009.