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Dear Karen,

I have seen both definitions :) As you said though, it seems like yours seems to appear more in accounting texts. I am inclined to agree with yours though. Doubling the price of goods does not affect how fast stuff sells, but does double TMFRunkle's definition of inventory turnover.

Furthermore, defined in your fashion, inventory turnover = 365/(days in inventory), with the latter quantity defined at

Also, I do not understand the "fixed cost, variable cost" argument that TMFRunkle presents.

I have seen TMFRunkle's definition appear, for example, when one compares "inventory turnover" to "asset turnover". The latter uses sales, and fits nicely into the return on equity "duPont decomposition":

return on equity = income/equity
= (income/sales)*(sales/assets)*(assets/equity)
= profit margin * asset turnover * leverage

IMHO just define exactly what you mean by "inventory turnover", and keep in mind that it is just one of many pieces of data for a company.


Lleweilun Smith
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