1. What is Inventory Turns Ratio?

The Inventory Turns Ratio, also known as inventory turnover, measures how efficiently a company manages its stock by calculating how many times inventory is sold and replaced over a period. It indicates how well a company converts inventory into sales.

2. How Does the Calculator Work?

The calculator uses the inventory turns formula:

Where:

• \( Turns \) — Inventory turnover ratio (times/year)
• \( COGS \) — Cost of goods sold (currency/year)
• \( Average\ Inventory \) — (Beginning Inventory + Ending Inventory) / 2 (currency)

Explanation: The ratio shows how many times a company's inventory is sold and replaced during a specific period. Higher turns indicate better inventory management and sales performance.

3. Importance of Inventory Turns Calculation

Details: Inventory turnover is crucial for assessing operational efficiency, identifying slow-moving inventory, optimizing stock levels, improving cash flow, and making informed purchasing decisions.

4. Using the Calculator

Tips: Enter COGS in currency per year, beginning and ending inventory values in currency. All values must be valid (COGS > 0, inventory values ≥ 0).

5. Frequently Asked Questions (FAQ)

Q1: What is a good inventory turnover ratio?
A: It varies by industry, but generally higher ratios are better. Retail typically has 4-6 turns, while manufacturing may have 2-4 turns annually.

Q2: Why is average inventory used instead of ending inventory?
A: Average inventory provides a more accurate picture by smoothing out seasonal fluctuations and inventory level changes throughout the period.

Q3: What does a low inventory turnover indicate?
A: Low turnover may suggest overstocking, poor sales, obsolete inventory, or ineffective inventory management strategies.

Q4: How can companies improve their inventory turnover?
A: Strategies include better demand forecasting, reducing lead times, implementing just-in-time inventory, and improving sales and marketing efforts.

Q5: Should inventory turnover be compared across industries?
A: No, turnover ratios should only be compared within the same industry due to different business models, product types, and inventory requirements.