Cash Turns

A factor sometimes considered in businesses such as retail with a substantial inventory and low margins. In such a business a crucial question of profitability and rates of return is how often the value (either capital or credit) inherent in the inventory is ‘turned.’ Thus to take for example milk – the inventory in most supermarkets is turned daily, which means that the number of cash turns per annum is close to 365. A 1% margin on milk sold thus translates in principle to a basic-365% margin per annum (supplier credit terms may have a major bearing on this analysis.) Other products and business have a much lower level of cash turns, requiring the margin on sales to be higher to secure a good rate of return.

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