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 (typically 12 months). It measures how efficiently inventory is managed.

2. How Does the Calculator Work?

The calculator uses the Inventory Turns formula:

Where:

• \( COGS \) — Cost of Goods Sold (total cost to produce goods sold, in USD)
• \( Average Inventory \) — Average inventory value over 12 months (in USD)

Explanation: The ratio divides the cost of goods sold by average inventory to show how efficiently inventory is being managed.

3. Importance of Inventory Turns

Details: Higher turnover generally indicates strong sales or effective inventory management. Low turnover may indicate overstocking, obsolescence, or weak sales.

4. Using the Calculator

Tips: Enter COGS and average inventory in USD. 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: Ideal ratios vary by industry. Retail typically has higher turns (5-10) than manufacturing (3-4). Compare with industry benchmarks.

Q2: How is average inventory calculated?
A: For annual turns, average is often (Beginning + Ending Inventory)/2. For more precision, use monthly averages.

Q3: Should I use COGS or sales in numerator?
A: COGS is preferred as it matches inventory cost basis. Sales would inflate the ratio due to markup.

Q4: What causes high inventory turnover?
A: Efficient operations, strong demand, or potentially stockouts if too high.

Q5: What causes low inventory turnover?
A: Overstocking, weak sales, obsolete inventory, or poor inventory management.