1. What is Inventory Turnover Ratio?

The Inventory Turnover Ratio measures how many times a company's inventory is sold and replaced over a period. It indicates how efficiently a company manages its inventory.

2. How Does the Calculator Work?

The calculator uses the Inventory Turnover Ratio formula:

Where:

• \( \text{COGS} \) — Total cost of goods sold during the period
• \( \text{Average Inventory} \) — (Beginning Inventory + Ending Inventory) / 2

Explanation: A higher ratio indicates more efficient inventory management, while a lower ratio may suggest overstocking or obsolescence.

3. Importance of Inventory Turnover

Details: This ratio is crucial for businesses to assess inventory management efficiency, identify potential issues, and compare performance with industry standards.

4. Using the Calculator

Tips: Enter COGS and average inventory in dollars. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good inventory turnover ratio?
A: It varies by industry. Generally, higher is better, but too high might indicate stockouts. Compare with industry averages.

Q2: How often should I calculate this ratio?
A: Typically calculated annually, but can be done quarterly for more frequent monitoring.

Q3: What if my ratio is too low?
A: A low ratio may indicate overstocking, obsolete inventory, or declining sales. Investigate the underlying cause.

Q4: Can the ratio be too high?
A: Yes, extremely high ratios might indicate insufficient inventory levels leading to stockouts and lost sales.

Q5: How does this differ from days inventory outstanding?
A: Days inventory outstanding = 365 / inventory turnover ratio. It shows how many days inventory is held before being sold.