Accounting / July 18, 2018 / Willow Mccoy
An income statement, the most common financial statement, shows a company's revenue and total expenses, including noncash accounting such as depreciation, traditionally over a period of one month. An income statement is used to determine the performance of a company, specifically how much money it made, how much money it paid out, and the resulting profit or loss from the revenue and expenses.
The Inventory Turnover and Days' Inventory Ratios measure the firm's management of its Inventory. In general, a higher Inventory Turnover Ratio is indicative of better performance since this indicates that the firm's inventories are being sold more quickly. However, if the ratio is too high then the firm may be losing sales to competitors due to inventory shortages. The Inventory Turnover Ratio is calculated by dividing Cost of Goods Sold by Inventory. When comparing one firms's Inventory Turnover ratio with that of another firm it is important to consider the inventory valuation methid used by the firms.
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