A guide to the stats behind a successful retail business

Efficiency ratios are sometimes referred to as activity ratios. They give insight into how well the company manages its operations and sales activities. The goal of these activities is to produce income through the effective use of the company’s resources.

Analyzing financial ratios often is an essential part of any well-run and well-planned business practice. These metrics should be assessed frequently to ensure that the company can meet its short-term liquidity responsibilities to measure its accountability to pay off its debt and obligations owed. They are the most straightforward financial KPIs to demonstrate that a company is turning a profit and running an efficient business.

Inventory turnover demonstrates how many times a company has sold the merchandise and then replaced the inventory over a period of time. It is common to use sales or COGS, but sometimes it may be more useful to use units sold instead because it does not include markup costs or variable margins. Therefore, it may be a better predictor. A high inventory turnover could indicate that the company has strong sales. However, it could also show that the company has insufficient inventory to cover all the sales. On the other hand, a low inventory turnover number could suggest that the company has excess inventory and weak sales. Therefore, this ratio will enable the company to decide on pricing, purchasing, and marketing of the product.

Who This Book Is For
This is a primer book for anyone in the field of retail that needs to learn or refresh their skills or for a reader who wants to move in their company to a more analytical position.