The impact of inventory turnover ratio on companies' stock performance in the retail industry

Abstract

In proportion to the size and relevance of inventory within the retail industry, there is an inadequate amount of research that can be found explaining the impact inventory has on the performance of the retail firm. These studies hypothesise that inventory turns are directly correlated to the performance of the company. This paper is an empirical analysis, showing the variance of annual inventory turns of a company can best explain variations in company performance in the retail industry. As shown in this model, shifts in the annual inventory ratios of companies are used as indicators to predict future stock performance. The ability of a company to control its annual inventory turns variance is a good indicator as to the quality of that management in other areas of the retail firm. Finally, the maintenance of the inventory turnover ratio is analysed regarding how it is implemented in various firms that are included in the sample of data.