1. What is Inventory Turnover Ratio?

The Inventory Turnover Ratio measures how many times a company sells and replaces its inventory during a given period. It indicates the efficiency of inventory management and how quickly products are moving through the supply chain.

2. How Does the Calculator Work?

The calculator uses the inventory turnover formula:

Where:

• \( COGS \) — Cost of Goods Sold (total cost of products sold during the period)
• \( Avg\ Inventory \) — Average Inventory Value (average of beginning and ending inventory)

Explanation: This ratio shows how efficiently a company manages its inventory by comparing the cost of goods sold to the average inventory level.

3. Importance of Inventory Turnover

Details: A higher turnover ratio indicates strong sales and efficient inventory management, while a lower ratio may suggest overstocking, weak sales, or obsolete inventory. This metric is crucial for optimizing working capital and improving cash flow.

4. Using the Calculator

Tips: Enter COGS and average inventory in the same currency units. Both values must be positive numbers. The result shows how many times inventory is turned over per year.

5. Frequently Asked Questions (FAQ)

Q1: What is a good inventory turnover ratio?
A: It varies by industry, but generally a ratio between 5-10 is considered good for most retail businesses. Higher ratios are better as they indicate faster inventory movement.

Q2: How do I calculate average inventory?
A: Average inventory = (Beginning Inventory + Ending Inventory) ÷ 2. Use values from the same accounting period.

Q3: What does a low turnover ratio indicate?
A: Low turnover may indicate overstocking, poor sales, or obsolete inventory that isn't selling quickly enough.

Q4: Can turnover ratio be too high?
A: Extremely high turnover might indicate insufficient inventory levels, which could lead to stockouts and lost sales opportunities.

Q5: How often should I calculate this ratio?
A: Most businesses calculate it quarterly or annually to track inventory management efficiency over time.