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Computerized Investing > Third Quarter 2009

Inventory Turnover

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by CI Staff

Ratio analysis forms the cornerstone of fundamental stock analysis. There are a variety of ratios that analysts use to judge the attractiveness of a company as an investment. Ratios can help evaluate a company’s liquidity, profitability, debt levels, cash flow, valuation, and operating performance.

Operating performance ratios look at how well a company turns its assets into revenue as well as the efficiency by which it converts merchandise into cash. When using these ratios, it is important to consider both short-term assets, such as inventory and accounts receivables, and long-term assets such as property, plant and equipment. In general, the better these ratios, the better the company is and the better it is for shareholders.

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Discussion

PJ Babaoglu from SC posted over 3 years ago:

A very useful and instructive coverage of Inventory Turnover ratio. Knowing how to interpret it makes for a richer analysis of a company's earning and sales trends.


Thomas from NH posted over 3 years ago:

My concern about the four companies selected for the inventory turnover discussion is their different revenue model. Apple is a hardware company; Dell is adding service revenues but is similar to Apple; H-P is more than a PC hardware company with the printer and mini computer segments; and, IBM has changed to a service company. If you want to compare these four for investment opportunities, you almost have to go their segment reporting.


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