In financing a small business, there are a multitude of tools available. One way to finance inventory is by using the 30 day pay program with your vendors. Another tool is seasonal payment program and a third tool is exercising a line of credit tied to receivables or sales history.
Inventory Turnover Ratio
Inventory turnover ratio measure the frequency of turnover with the entire inventory dollar value in sales. The formula is Sales/Avg Inventory = Inventory Turnover.
In business, liquidity is defined as the period of time it takes to turn assets into cash. It takes 20 minutes to turn the balance in the checking account into cash. You head on down to the bank and present a check. You get cash. But most businesses run on just more than the cash in the bank account.
A relationship exists between inventory and sales. This is referred to as ‘Inventory Turnover’ or ‘Turnover Ratio’. It is simply the number of days it takes to turn over the dollar value of the inventory. This relationship is important because as the retailer, you would want this number has high as possible.