1. What is Inventory Turnover Ratio?

The Inventory Turnover Ratio, also known as Inventory Turns, measures how many times a company sells and replaces its inventory during a specific period (usually 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:

• \( COGS \) — Cost of Goods Sold ($)
• \( Average\ Inventory \) — Average inventory value during the period ($)

Explanation: This ratio shows how efficiently a company is managing its inventory. Higher turns indicate better inventory management and stronger sales.

3. Importance of Inventory Turns Calculation

Details: Inventory turnover is crucial for assessing operational efficiency, identifying slow-moving inventory, optimizing cash flow, and making informed purchasing decisions.

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: It varies by industry, but generally, higher ratios (4-6 for retailers, 6-8 for manufacturers) indicate efficient inventory management.

Q2: What does a low inventory turnover indicate?
A: Low turnover may suggest overstocking, poor sales, or obsolete inventory that ties up working capital.

Q3: How is average inventory calculated?
A: Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2 for the period being analyzed.

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

Q5: How often should inventory turnover be calculated?
A: Most businesses calculate it quarterly or annually, but it can be monitored monthly for more frequent analysis.