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Inventory and Receivable Trends

Retailers must always study sequential and year-over-year trends in inventory and accounts receivables. This is because the increase in sales must be in line with the increase of these variables. Should inventory grow at a faster rate than sales, it signals that the retailer is having a hard time selling the merchandise. In this case, the retailer will sell the merchandise at a discount, or write-off or he may discard it altogether. These two options sacrifice profit margins and hurt earnings.

Stocks inventory

Stocks inventory

On the other hand, if receivables grow faster than sales, it signals that the retailer is not being paid on time. The retailer has to be cautious if he or she is merely recording empty sales. It must cushion earnings by providing for bad debts, or uncollected debts. Meanwhile, information technology applied in retailing has been found to effectively help supermarkets in managing inventory, logistics, and warehousing. This has resulted in lower overall costs. Indeed, IT proves a powerful tool in gathering information, especially market trends.

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