Turnover Ratio

“How many times are you turning over your inventory?”

The question is asking how well you’re using your precious capital. Like…if you’re barely turning over your inventory, then you probably didn’t need to hold as much of it. You sell after-market bike tires. You run a bike shop. Did you really need to buy and then store and risk being stolen 4,000 bike tires when you only sell, on average, 40 a month? Yes, they were a “great deal” at 20% off, but if your cost of capital is 12%, then to rent the capital to keep those tires is costing you something close to 40 tires a month in interest (1% of 4,000 is 40 tires; 12 months in a year in most states).

So then...no, it was not at all a good deal. Next time just buy the tires as ya need ‘em.

See: JIT Inventory.