1. What is Inventory Turnover Ratio?

The Inventory Turnover Ratio measures how many times a company sells and replaces its inventory during a period. It indicates how efficiently inventory is managed and how quickly products are sold.

2. How Does the Calculator Work?

The calculator uses the Inventory Turnover formula:

Where:

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

Explanation: A higher ratio indicates better inventory management and faster sales, while a lower ratio may suggest overstocking or weak sales.

3. Importance of Inventory Turnover

Details: This ratio helps businesses optimize inventory levels, improve cash flow, and identify potential issues with product demand or purchasing practices.

4. Using the Calculator

Tips: Enter COGS and average inventory in dollars. Both values must be positive numbers. The result is a unitless ratio.

5. Frequently Asked Questions (FAQ)

Q1: What is a good inventory turnover ratio?
A: It varies by industry. Retailers typically aim for 5-10, while manufacturers may have 3-6. Compare with industry benchmarks.

Q2: How often should inventory turnover be calculated?
A: Typically calculated annually, but quarterly or monthly analysis can provide more timely insights.

Q3: What if my ratio is too high?
A: While high is generally good, extremely high ratios may indicate insufficient inventory leading to stockouts.

Q4: How does this differ from days inventory outstanding?
A: Days inventory outstanding = 365 / inventory turnover, showing how many days inventory is held before sale.

Q5: Should I use COGS or sales in the numerator?
A: COGS is preferred as it matches inventory cost basis. Sales would inflate the ratio as it includes markup.