1. What is Inventory Turnover Ratio?

The Inventory Turnover Ratio measures how many times a company's inventory is sold and replaced over a 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 ratio formula:

Where:

• \( Turns \) — Inventory turnover ratio (times)
• \( COGS \) — Cost of Goods Sold ($)
• \( Avg\ Inventory \) — Average Inventory value ($)

Explanation: This ratio shows how quickly inventory is being sold and replenished. A higher ratio indicates better inventory management and sales performance.

3. Importance of Inventory Turnover Ratio

Details: The inventory turnover ratio is crucial for assessing operational efficiency, identifying slow-moving inventory, optimizing stock levels, and improving cash flow management.

4. Using the Calculator

Tips: Enter COGS (total cost of goods sold during the period) and average inventory value (beginning inventory + ending inventory divided by 2). Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good inventory turnover ratio?
A: It varies by industry, but generally a ratio of 5-10 is good for most retail businesses. Higher ratios typically indicate better performance.

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

Q3: What does a low turnover ratio indicate?
A: Low turnover may indicate overstocking, poor sales, or obsolete inventory that needs to be addressed.

Q4: Can the ratio be too high?
A: Yes, extremely high ratios might indicate insufficient inventory levels, potentially leading to stockouts and lost sales.

Q5: How often should this ratio be calculated?
A: It should be calculated regularly (monthly or quarterly) to monitor inventory management efficiency and identify trends.