The effects of firm size and sales growth rate on inventory turnover performance in the U.Sretail sector
Inventory constitutes a significant fraction of the assets of a retail firm. Specifically, inventory is the largest asset on the balance sheet for 57% of publicly traded retailers in our dataset.1 The ratio of inventory to total assets averages 35.1% with buildings, property, and equipment (net) constituting the next largest asset at 31%. Moreover, the ratio of inventory to current assets averages 58.4%. Inventory is not only large in dollar value but also critical to the performance of retailers. For example, according to Standard & Poor’s industry survey on general retailing (Sack 2000), “Merchandise inventories are a retailer’s most important asset, even though buildings, property and equipment usually exceed inventory value in dollar terms.” Thus, the importance of improving inventory management in retail trade cannot be overemphasized.
The signals that managers and analysts use to determine how well a retailer is managing its inventory include inventory turnover...
KeywordsFirm Size Small Firm Large Firm Safety Stock Capital Intensity
The authors are thankful to Professor Ananth Raman for many helpful comments on this manuscript. The questions of the effects of firm size and sales growth rate on inventory turnover were suggested to the first author by Professors Marshall Fisher and Ananth Raman. The authors are also thankful to seminar participants at Boston University, Cornell University, University of Michigan, and University of North Carolina for numerous suggestions that were helpful in this research.
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