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Turnover Ratio Formula:
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The Turnover Ratio is a financial metric that measures how efficiently a company manages its inventory by comparing sales to average inventory levels. It indicates how many times inventory is sold and replaced over a specific period.
The calculator uses the Turnover Ratio formula:
Where:
Explanation: The ratio shows how effectively a company is converting its inventory investment into sales revenue. Higher ratios generally indicate better inventory management efficiency.
Details: The Turnover Ratio is crucial for assessing inventory management efficiency, identifying potential overstocking or understocking issues, and making informed decisions about purchasing and production planning.
Tips: Enter sales and average inventory values in USD. Both values must be positive numbers. The calculator will compute the turnover ratio, which is a dimensionless value indicating inventory efficiency.
Q1: What is considered a good turnover ratio?
A: Ideal ratios vary by industry, but generally, higher ratios are better. A ratio of 5-10 is often considered good for retail, while manufacturing may have lower benchmarks.
Q2: How is average inventory calculated?
A: Average inventory is typically calculated as (Beginning Inventory + Ending Inventory) ÷ 2 for a specific period.
Q3: What does a low turnover ratio indicate?
A: A low ratio may suggest overstocking, slow-moving inventory, or poor sales performance, which can tie up capital and increase storage costs.
Q4: Can the ratio be too high?
A: Extremely high ratios might indicate insufficient inventory levels, potentially leading to stockouts and lost sales opportunities.
Q5: How often should turnover ratio be calculated?
A: It should be calculated regularly (monthly, quarterly, or annually) to monitor inventory performance trends and make timely adjustments.