Inventory Turnover Ratio Calculator: Is Your Stock Working for You?

ByElsa Riemannhardt Last Checked:

PHOTO BY KAMPUS PRODUCTION ON PEXELS

An Inventory Turnover Ratio Calculator can be a game changer for businesses. It helps determine how efficiently inventory is being managed by showing how many times inventory is sold and replaced over a specific period.

Understanding this ratio not only aids in improving stock management but can also significantly enhance profitability. Curious about how to maximize your turnover?

Track Inventory Costs

Tracking inventory costs is essential for calculating your inventory turnover ratio and assessing business efficiency.

Start by identifying the cost of goods sold (COGS) and average inventory during a specific period. COGS includes production, purchase, and distribution costs, while average inventory is the midpoint of beginning and ending stock values.

Accurate tracking helps reveal inventory trends, highlights overstock or shortages, and supports better decision-making.

To know more about these terms, check out the following post:

Calculate Turnover

To find the inventory turnover ratio, follow this simple formula:

Inventory Turnover Ratio = Cost of Goods Sold (COGS) ÷ Average Inventory

  1. Check the financial statements to find the cost of goods sold for the period.
  2. Use the formula:
    • Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2
  3. Insert COGS and Average Inventory into the turnover ratio formula.

Example

ItemCalculation
COGS$200,000
Beginning Inventory$50,000
Ending Inventory$70,000
Average Inventory($50,000 + $70,000) ÷ 2 = $60,000
Inventory Turnover Ratio$200,000 ÷ $60,000 = 3.33

This result means the inventory turns over approximately 3.33 times within the period.

Here’s a calculator you can use:

Analyze Efficiency

Efficiency in inventory management is crucial for any business. The inventory turnover ratio measures how effectively a company sells its inventory. A higher ratio indicates better efficiency.

To analyze this ratio effectively, consider the following:

  • Look at industry benchmarks to see how a business stacks up against competitors.
  • Track the ratio over time to identify patterns in sales and inventory management.
  • A low turnover could signal overstocking or weak sales.

Find out what excess inventory and not enough inventory mean here:

Similar Posts