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Finance allah shmoop What is inventory turnover All right well

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this is inventory and this is a turnover Okay so

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what is it really Well you have inventory I'ii stuff

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you want to sell and then you sell it You

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started the year with a thousand edible necklaces The pumpkin

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spice model promises to be very popular anyway You sold

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them for ten dollars each So you have ten grand

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in inventory But you did five hundred eighty thousand units

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of sales inventory turnover Big Really big five hundred eighty

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times big Okay different story Your tesla You have one

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hundred tires in inventory You had that same number january

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one in april twelfth In july twenty third and december

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Thirty one of this year One hundred tires steady state

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But you sold fifteen thousand cars in a year We'll

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let four tires apiece Yeah That's a sixty thousand tires

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And we're not counting that thing in the trunk It's

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Not really a tyre anyway It's More like a bicycle

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tire Enormous inventory turnover Sixty thousand over one hundred or

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six hundred Ex enormous inventory turnover Very efficient use with

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the capital spent on those hundred tires Well so why

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Does inventory turnover even matter Alright Yeah it's about capital

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We hinted you there Think about your capital needs Like

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if you have to raise tons of money to store

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tons of inventory that you take forever to sell Well

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then you're not using your capital very efficiently Like why

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not make the tire manufacturers who are actually in the

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business of building distributing and planning for tyre demand Why

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not make them hold all the inventory using their capital

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not yours Well not all inventory turnover numbers mean the

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same thing like what's inventory in an oil rig leasing

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company Well you keep eight rigs on hand you know

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you'll have to tow them out to the middle of

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the ocean At some point they're crazy expensive to build

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and maintain and some years when oil is really cheap

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there just won't be any demand for your rigs for

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drilling so you'll have to store him and oil them

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and wave to them kindly So how do you make

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sense out of that number like oil rig Turn over

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when you're comparing it to say a grocery stores turnover

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where the average six pack of diet coke last like

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fifty three hours on the shelves made so inventory turnover

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is really more of a quote relative to last year

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unquote thing or a quote relative to our hated competitors

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bob unquote kind of thing And there are ways to

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game this data point as well the easiest of which

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is well too Just let your inventory amount fall like

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if you started the year with a thousand naked cupid

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hood ornaments and let supplies dwindled to just two hundred

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while then via industry norms of just taking the average

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quarterly inventory levels through the year Well you might show

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an average inventory of six hundred units this year thereabouts

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and you'd be going into the next year with only

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two hundred and generated a lot of cash along the

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way Like you turned all that money that was tied

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up in your inventory in the cash on your bottom

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lines that good Is it bad Well just like pretty

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much everything in from of finance videos and diapers it

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depends Well it's good to have low inventory to a

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point What happens if you run so low that customers

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can't buy from you because you can't fill orders for

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three months and then they go to bob than the

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cost of not having enough inventory was massive You lost

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sales profits and market share or power or theft and

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it hurt your brand like people don't respect it as

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much anymore Yeah sorry just keeping it real But in

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general high turnover is good It means you're using your

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inventory capital of the capital you spent to build your

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inventory efficiently and that when you make it to the

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top of the hill you're you know able to keep 00:03:43.925 --> [endTime] your balance Yeah

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