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Ratios for Inventory Analysis

April 13, 2006

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Inventory is the amount of merchandise, parts, supplies, or other goods your business keeps on hand to meet the demands of your customers. Depending on the nature of your business (i.e., retail, wholesale, service, manufacturing), the efficiency of your inventory management may have a significant impact on your cash flow and, ultimately, your business's success or failure.

The following inventory analysis tools can be used to help manage your investment in inventory:

• average inventory investment period
• inventory to sales ratio
• turnover analysis

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