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Inventory Turns Formula:
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The Inventory Turnover Ratio measures how many times a company's inventory is sold and replaced over a specific period. It indicates the efficiency of inventory management and helps identify slow-moving or obsolete items.
The calculator uses the inventory turnover formula:
Where:
Explanation: This ratio shows how effectively a company is managing its inventory by comparing the cost of goods sold to the average inventory level.
Details: A higher turnover ratio indicates efficient inventory management and strong sales, while a lower ratio may suggest overstocking, weak sales, or obsolete inventory. Item-specific analysis helps optimize stock levels for individual products.
Tips: Enter COGS and average inventory values in dollars. Both values must be positive numbers. The result shows how many times per year the inventory turns over.
Q1: What is a good inventory turnover ratio?
A: Ideal ratios vary by industry. Generally, higher ratios are better, but extremely high ratios may indicate stockouts. Compare with industry benchmarks for meaningful analysis.
Q2: How is average inventory calculated?
A: Average inventory is typically calculated as (Beginning Inventory + Ending Inventory) ÷ 2 for the period being analyzed.
Q3: Why calculate turnover by item?
A: Item-specific analysis helps identify which products are selling well and which are slow-moving, enabling better inventory optimization and purchasing decisions.
Q4: What factors affect inventory turnover?
A: Sales volume, purchasing patterns, seasonality, product life cycles, and inventory management practices all influence turnover ratios.
Q5: How often should turnover be calculated?
A: Monthly or quarterly calculations are recommended for ongoing inventory management and performance monitoring.