This paper describes the importance of the Inventory Turnover ratio for the evaluating of the soundness of the financial state of the company. Besides, it explains the crucial role of Excel in various financial and economic reports preparation.
Regarding the formula that is used to calculate Inventory Turnover ratio, it is stated that Cost of Goods Sold divided by Average Inventory equals to Inventory Turnover. It should be underlined that Inventory Turnover is considered to be one of the most essential and informative ratios in business efficiency analysis. The liquidity of the company’s inventory is gauged by this ratio. When interpreting the obtained level of Inventory Turnover it is needed to point out that high rate of Inventory Turnover implies that the company manages and sells the inventory efficiently. In other words, the higher Inventory Turnover is, the faster inventory is sold, and the company needs to have less funds. If this ratio is low, then the company is at risk of possessing an obsolete inventory.
Kimmel (2011) argues that Inventory Turnover ratio shows how many times over the analyzed period the organization used the average outstanding balance of stocks. The indicator shows the quality and efficiency of inventory management, identifies the remaining unused stock, or obsolete stocks.
Reduction in the rate of inventory turnover may reflect the accumulation of excess in inventory, inefficient warehouse management, the accumulation of unusable materials. At the same time, the high turnover does not always favor a positive indicator, as it can evidence the depletion of stocks, which could lead to interruptions in the production process.
In addition, the inventory turnover depends on the marketing strategy of the organization. Lower inventory turnover ratio is inherent more to companies with high profit margins than for firms with low profit margins. The higher inventory turnover of the company, the more efficient is the production and the less is the need for working capital for its organization (Kimmel, 2011).
It is also important to recognize that comparison of the inventory turnover ratios can be applied only for the businesses of the same industry because companies operating in perishable goods market will have higher inventory turnover than those businesses specializing in durables.
What value do you see in using Excel and its calculators for doing all of your accounting work?
Accounting work implies gathering, preparation and analysis of different kinds of information for the reports relating to various areas of responsibility. It can be either report about number of days of accounts receivables or invoices that should be paid within a particular period of time.
To my mind, the most useful possibilities of Excel are various formulas, pivot tables and the possibility to create macros. The pivot table is a powerful tool for data analysis. It is a special type of a table summarizing the information from specific fields list or database, allowing post-build configuration for various sections of the data. The pivot table summarizes the information in the database fields in their relationship with each other and provides quick answers to many questions (Kimmel, 2011).
It is essential to underline that Excel proposes many mathematical and logical formulas with the aim to make the process of reports preparation faster and more convenient for the user. Data obtained from the accounting systems is usually characterized by a large amount - the number of rows can be tens of thousands, the number of columns is often big, however the query languages to databases do have a limit on the number of fields displayed simultaneously.
The processing of these data in Excel can be carried out by various methods. They are:
- Data processing using standard Excel interface;
- Analysis of data by using pivot tables and charts;
- Consolidating data by using formulas worksheet
- Sample data and populate the template for the report;
- Data processing software.
Excel makes the process of necessary information gathering and generalizations easier.