Inventory and profitability

Inventory turns, or turnover, has a significant impact on profits. The faster inventory passes through your business, the higher the annual rate of return on the investment.

Grocery stores, for example, earn only about 2% gross margin on sales but they turn their inventory about nine times a year. Nine turns times 2% yields an annualized rate of return of 18% gross margin.

Smaller inventories turning faster cost far less than the alternative thus contributing to bottom line profits.