How can low inventory turnover ratios impact a business?

A low inventory turnover ratio signifies that a business is selling its inventory at a slower rate, which may lead to increased costs for stock management. This is because unsold inventory requires ongoing storage and handling, leading to higher warehousing costs, potential spoilage, and obsolescence, especially if the products have a limited shelf life. Additionally, businesses may need to allocate more resources to inventory tracking and management processes, further escalating overhead costs. Efficient inventory management aims for a balance that minimizes holding costs while maximizing sales, so a low turnover ratio can disrupt this balance and negatively impact the overall financial performance of the business.