Embedded Files
Managers closely monitor inventory levels
Managers closely monitor inventory levels
Why?
They want to ensure that inventories are available to deliver to customers, but
they also want to keep inventory carrying costs (e.g., rent and insurance on storage facility) as low as possible.
Just-in-time (JIT) inventory system
Just-in-time (JIT) inventory system
In a just-in-time (JIT) inventory system, a manufacturer coordinates with its raw materials suppliers so that raw materials are delivered "just-in-time" (e.g., the day before) for the start of the manufacturing process.
The goal of this system is to eliminate as many inventory carrying costs as possible.
Ratios
Ratios
Gross profit ratio
Gross profit ratio
The gross profit ratio provides a measure of how much of each sales dollar is available to pay for expenses other than cost of goods.
Inventory turnover ratio
Inventory turnover ratio
The inventory turnover ratio shows the number of times the average inventory balance is sold during a period. The more frequently a business is able to sell or "turn over" its inventory, the lower its investment in inventory must be for a given level of sales.
Earnings quality
Earnings quality
We discussed earnings quality in Module 5. Earnings quality is the ability of current period income (also referred to as "earnings") to predict a company's future income. The ratios above can be used to assess the quality of a company's earnings. Example below.
Page updated
Google Sites
Report abuse