1. What is Inventory Turnover?

Inventory Turnover is a financial ratio that measures how many times a company's inventory is sold and replaced over a period. It indicates how efficiently a company manages its inventory levels.

2. How Does the Calculator Work?

The calculator uses the Inventory Turnover formula:

Where:

• \( Turns \) — Inventory turnover ratio (turns per year)
• \( COGS \) — Cost of Goods Sold in dollars
• \( Average\ Inventory \) — Average inventory value in dollars

Explanation: The ratio shows how quickly inventory is converted into sales. Higher turnover indicates better inventory management and sales performance.

3. Importance of Inventory Turnover Calculation

Details: Inventory turnover is crucial for assessing operational efficiency, identifying slow-moving inventory, optimizing stock levels, and improving cash flow management.

4. Using the Calculator

Tips: Enter COGS and Average Inventory in dollars. Both values must be positive numbers. Average inventory is typically calculated as (Beginning Inventory + Ending Inventory) ÷ 2.

5. Frequently Asked Questions (FAQ)

Q1: What is a good inventory turnover ratio?
A: Ideal ratios vary by industry. Generally, higher ratios are better, but extremely high turnover might indicate insufficient inventory levels.

Q2: How does inventory turnover affect business performance?
A: Higher turnover typically means better sales, efficient inventory management, and reduced holding costs.

Q3: What factors can affect inventory turnover?
A: Seasonality, market demand, pricing strategy, inventory management practices, and economic conditions.

Q4: How often should inventory turnover be calculated?
A: Typically calculated annually, but can be calculated quarterly for more frequent monitoring.

Q5: What's the difference between inventory turnover and days inventory outstanding?
A: Days inventory outstanding = 365 ÷ Inventory Turnover, showing how many days inventory is held before being sold.