Empirical analysis of inventory turnover ratio in fmcg retail sector-evidence from the Republic of Serbia

Abstract

© 2013, Inzinerine Ekonomika-Engineering Economics. All right reserved. Considering that inventories feature as a significant cost component, especially in retail companies, inventory management requires particular attention. Various tracking indicators are used, with the turnover ratio being one of the most common. This article focuses on inventory turnover ratio determinants of Serbian large and medium sized enterprises registered solely for trading in fast moving consumer goods. Based on the gathered data, the authors analysed its relation to gross margin, capital intensity and sales growth rate. The results have shown that the inventory turnover ratio correlates positively with sales growth rate and gross margin, whereas its correlation to capital intensity is not statistically significant. Retailers’ approach to business operations and decision making on delivery of orders, reflecting the decline in the average inventory level, feature as the fundamental reasons for establishing a positive correlation between inventory turnover ratio and sales growth rate. On the other hand, the reasons for the positive correlation between inventory turnover and gross margin can be found in the characteristics of the retail market in the Republic of Serbia regarding the concentration levels and market share of the leading retailers. In addition to application by retail managers, the obtained results can also be used as a basis for future research related to inventory analysis of the Serbian retail sector.