What is crucial
to assess is the trend !
Example
:
Click
here to see the source of data
Starworld Group |
2021 |
2022 |
2023 |
Inventory at the beginning of the year
|
? |
97 |
116 |
Inventory at the end of the year |
97 |
116 |
151 |
Annual Average Inventory |
? |
106 |
133 |
Cost of sales
|
696 |
835 |
1086 |
Opening days |
365 |
365 |
365 |
Average Turnover Period (Days) |
? |
47 |
45 |
Starworld
Group |
2022 |
2023 |
Purchases |
854 |
1121 |
+ Inventory at the beginning of the
year |
97 |
116 |
- Inventory at the end of the year |
116 |
151 |
Cost of Sales |
835 |
1086 |
Note : The
cost of sales depends on sales. So if the
turnover in days is higher or lower
than 45-46
days, it will affect the purchases and therefore
the CASH.
An increase of inventory turnover
reduces the quantity of goods immobilized.
That means less purchases and finally less
payments to suppliers.
Sources :
Interpreting
and using Financial Statements, 1999,Marc Bertonèche, Ph. D. in Finance
from the Northwestern University, Professor
at the Bordeaux University and at Sciences-PO
Paris, Visiting Professor at Harvard Business
School and Oxford University
Corporate
Finance Course, Bernard Jaquier, Professor
in Economics & Finance, Lausanne, Switzerland, 2024