Generally speaking, a declining (rising) inventory to sales ratio over time means that inventories grow more slowly (faster) than sales. From an operations management point of view, we are especially interested in how long inventory is held. Accordingly, the inventory to sales ratio can be multiplied by 12 months or 365 days providing a measure of inventory reach for a given value of sales. One further advantage of the inventory to sales ratio is that it corrects for sector size and for the impact of inflation. Finally, the analysis is only affected by changes in price levels to a minor degree, given that prices of outputs vary according to the prices of inputs. As we are using annual data in this study we will not analyse inventory fluctuations, i.e. short-term oscillations, which are regularly used by analysts for short-term business cycle forecasting (Knetsch 2004). Instead, our focus is on long-term trends in inventory to
sales ratios