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QuestionsCategory: Financials QuadrantAsset Turnover vs Inventory Days
Jieren Zheng asked 5 years ago

Hi guys,
I was reading about Dupont Analysis using ROE, I wonder if Asset Turnover could be used as a substitute or proxy to Inventory Turnover?
In a certain sense, inventories are kept as current assets which are to be sold soon.
What do you guys think?
Azrael

4 Answers
Victor Chng answered 5 years ago

Hi Jieren,
 
Asset turnover does not measure the inventory as good as inventory turnover. Asset turnover ratio is the sales divided by asset. Asset contained more than just inventory. Personally, I don;t use inventory turnover but use inventory days to track the inventory.

Jieren Zheng answered 5 years ago

Hi Victor,
Okay! Got it. Thanks!
But say for companies that are more service based or software, what would you see? I’m not sure inventory days could be used.

Victor Chng answered 5 years ago

Hi Jieren,
 
When it comes for service based companies, inventory does not matter anymore. I will just focus on receivables days and payable days. I will also focus on ROA.

Jieren Zheng answered 5 years ago

Hi Victor,
Noted, thank you so much! :D