1. What is Inventory Turnover?

The inventory turnover ratio measures how many times a company's inventory is sold and replaced over a period. A higher ratio indicates better inventory management and sales performance.

2. How the Calculator Works

The calculator uses the inventory turnover formula:

Where:

• Cost of Goods Sold (COGS) — Total cost of producing goods sold during the period
• Average Inventory — (Beginning Inventory + Ending Inventory) ÷ 2

Explanation: The ratio shows how efficiently inventory is being managed by comparing the cost of goods sold to the average inventory level.

3. Importance of Inventory Turnover

Details: This ratio helps businesses optimize inventory levels, identify slow-moving items, improve cash flow, and assess operational efficiency. Industry benchmarks vary widely, so comparisons should be made within the same industry.

4. Using the Calculator

Tips: Enter COGS and average inventory in dollars. Both values must be positive numbers. The result shows how many times inventory was turned over during the period.

5. Frequently Asked Questions (FAQ)

Q1: What's a good inventory turnover ratio?
A: It varies by industry. High-turnover industries (like groceries) may have ratios above 10, while capital-intensive industries may have ratios below 1.

Q2: Can turnover be too high?
A: Yes, extremely high turnover might indicate insufficient inventory levels leading to stockouts and lost sales.

Q3: How does this differ from days inventory outstanding?
A: Days inventory outstanding = 365 ÷ inventory turnover, showing how many days inventory is held before being sold.

Q4: Should I use COGS or sales in the numerator?
A: COGS is preferred because sales include markup, which would distort the ratio.

Q5: How often should I calculate this ratio?
A: Typically calculated quarterly or annually, but more frequent monitoring can help identify trends.