What impact does low inventory turnover generally have on a business?

Low inventory turnover can indicate that a business is not selling its products as quickly as it should be, which typically leads to a decline in net revenue. When inventory moves slowly, it ties up capital in unsold goods, resulting in additional costs such as storage, maintenance, and potential obsolescence. This situation can pressure the company’s financial performance, as it may have to markdown prices to clear out stale inventory, ultimately impacting net revenue negatively.

Additionally, a low turnover ratio may signal that inventory is overstocked or that products are not aligning with customer preferences, which can further limit a business's sales opportunities. Therefore, monitoring inventory turnover is crucial for maintaining healthy revenue levels, as swift sales of goods ensure that cash flow remains robust and minimizes excess inventory costs.