The inventory turnover ratio is essential for several reasons:
Efficiency: It indicates how effectively a company is managing its inventory levels in relation to its sales. Liquidity: A higher ratio suggests that inventory is being converted into sales quickly, improving the company's cash flow. Profitability: Efficient inventory management can reduce holding costs and minimize losses from obsolete stock, leading to better profit margins. Performance Benchmarking: Businesses can compare their ratios with industry averages to assess their competitive position.