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 specific period. It indicates how efficiently a company manages its inventory and converts it into sales.

2. How Does the Calculator Work?

The calculator uses the Inventory Turnover formula:

Where:

• \( \text{Cost of Goods Sold} \) — Total cost of goods sold during the period (currency unit/year)
• \( \text{Average Inventory} \) — Average inventory value during the period (currency unit)

Explanation: The ratio shows how quickly inventory is being converted into sales. A higher turnover indicates better inventory management and sales performance.

3. Importance of Inventory Turnover Calculation

Details: Inventory Turnover is crucial for assessing operational efficiency, identifying slow-moving inventory, optimizing stock levels, and improving cash flow management. It helps businesses make informed decisions about purchasing, production, and sales strategies.

4. Using the Calculator

Tips: Enter Cost of Goods Sold in currency units per year and Average Inventory in currency units. Both values must be positive numbers. The result shows how many times inventory turns over per year.

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. Retail typically has higher turnover (4-6), while manufacturing may be lower (2-4). Compare with industry benchmarks.

Q2: How do I calculate Average Inventory?
A: Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2, usually calculated for a specific period (monthly, quarterly, or annually).

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

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

Q5: How often should I calculate Inventory Turnover?
A: Most businesses calculate it monthly or quarterly to monitor inventory performance and make timely adjustments to inventory management strategies.