1. What is Inventory Turnover?

Inventory Turnover is a financial ratio that measures how many times a company's inventory is sold and replaced over a period. It indicates the efficiency of inventory management and how well a company is converting its inventory into sales.

2. How Does the Calculator Work?

The calculator uses the Inventory Turnover formula:

Where:

• \( COGS \) — Cost of Goods Sold (in currency, e.g., USD)
• \( Average\ Inventory \) — Average value of inventory held during the period (in currency, e.g., USD)

Explanation: The ratio shows how efficiently a company is managing its inventory. A higher turnover indicates better performance and faster inventory conversion to sales.

3. Importance of Inventory Turnover

Details: Inventory Turnover is crucial for assessing operational efficiency, identifying potential inventory management issues, and making informed business decisions about purchasing and production.

4. Using the Calculator

Tips: Enter COGS and Average Inventory in the same currency (e.g., USD). Both values must be positive numbers. The result shows how many times per year the inventory turns over.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Inventory Turnover ratio?
A: It varies by industry, but generally a higher ratio is better. Compare with industry averages for meaningful analysis.

Q2: How is Average Inventory calculated?
A: Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2 for the period being analyzed.

Q3: What does a low Inventory Turnover indicate?
A: Low turnover may suggest overstocking, slow-moving inventory, or poor sales performance.

Q4: Can Inventory Turnover be too high?
A: Extremely high turnover might indicate insufficient inventory levels, potentially leading to stockouts and lost sales.

Q5: How often should Inventory Turnover be calculated?
A: Typically calculated annually, but can be done quarterly for more frequent monitoring of inventory performance.