Turnover ratios measure how efficient the company is in using its assets to create revenue.  Obviously, the higher these ratios are the better.  These ratios can only be compared against other firms in the same industry ( or the same firm in preceding years ) to have any meaning.  Different industries have different requirements of inventory and fixed assets.

 

These ratios indicate the ability of a company to make money as a function of assets.

The more efficient a company is in generating income with fewer assets the more profitable it will be.

 

Dividing 365 days by the turnover ratio may make the result easier to understand:

 

eg.

       Daily Inventory Turnover Ratio = 365 / Inventory Turnover

                                                                                  Ratio