1. What Is Inventory Turnover?

Inventory turnover is a financial ratio showing how many times a company has sold and replaced inventory during a period. It measures how efficiently a company manages its inventory.

2. How Is Inventory Turnover Calculated?

The calculator uses two versions of the inventory turnover formula:

Where:

• \( Sales \) — Total sales revenue for the period
• \( COGS \) — Cost of goods sold for the period
• \( Average Inventory \) — (Beginning Inventory + Ending Inventory) / 2

Explanation: Higher turnover indicates better sales or effective inventory management, while lower turnover may indicate weak sales or excess inventory.

3. Importance of Inventory Turnover

Details: Inventory turnover is crucial for assessing operational efficiency, identifying inventory management issues, and comparing performance with industry peers.

4. Using the Calculator

Tips: Select whether to use Sales or COGS, enter the amount in USD, and enter average inventory value. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: Which is better - sales or COGS version?
A: COGS version is generally preferred as it eliminates profit margin effects, but sales version is acceptable when COGS data isn't available.

Q2: What is a good inventory turnover ratio?
A: This varies by industry. Retailers typically have higher turnover (5-10) than manufacturers (3-6). Compare with industry averages.

Q3: How often should inventory turnover be calculated?
A: Typically calculated annually, but can be done quarterly for more frequent monitoring.

Q4: What causes low inventory turnover?
A: Possible causes include overstocking, poor sales, obsolete inventory, or inadequate demand forecasting.

Q5: Can turnover be too high?
A: Yes, extremely high turnover might indicate insufficient inventory levels leading to stockouts and lost sales.