1. What Are Inventory Turns?

Inventory turns, also known as inventory turnover ratio, measures how many times a company's inventory is sold and replaced over a specific period, typically one year. It indicates the efficiency of inventory management and sales performance.

2. How Does The Calculator Work?

The calculator uses the inventory turns formula:

Where:

• \( \text{COGS} \) — Cost of Goods Sold in dollars
• \( \text{Average Inventory} \) — Average inventory value during the period in dollars

Explanation: This ratio shows how efficiently a company is managing its inventory by comparing the cost of goods sold to the average inventory level maintained.

3. Importance Of Inventory Turnover Ratio

Details: A higher inventory turnover ratio generally indicates strong sales and effective inventory management, while a lower ratio may suggest overstocking, weak sales, or obsolete inventory.

4. Using The Calculator

Tips: Enter COGS and average inventory values in dollars. Both values must be positive numbers to calculate the inventory turnover ratio.

5. Frequently Asked Questions (FAQ)

Q1: What is considered a good inventory turnover ratio?
A: Ideal ratios vary by industry, but generally, higher ratios are better. Retail typically has 5-10 turns, while manufacturing may have 3-6 turns annually.

Q2: How do you calculate average inventory?
A: Average inventory is typically calculated as (Beginning Inventory + Ending Inventory) ÷ 2 for the period.

Q3: What does a low inventory turnover indicate?
A: Low turnover may indicate overstocking, poor sales, obsolete inventory, or inefficient inventory management practices.

Q4: Can inventory turnover be too high?
A: Extremely high turnover might indicate insufficient inventory levels, potentially leading to stockouts and lost sales opportunities.

Q5: How often should inventory turnover be calculated?
A: Most businesses calculate it quarterly or annually, but monitoring it monthly can provide more timely insights for inventory management decisions.