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 period. It indicates how efficiently a company manages its inventory levels.

2. How Does the Calculator Work?

The calculator uses the inventory turnover formula:

Where:

• \( Turns \) — Inventory turnover ratio (times per year)
• \( COGS \) — Cost of Goods Sold in dollars
• \( Average\ Inventory \) — Average inventory value in dollars

Explanation: This ratio shows how quickly inventory is converted into sales. Higher turnover generally indicates better inventory management.

3. Importance of Inventory Turnover

Details: Inventory turnover is crucial for assessing operational efficiency, identifying slow-moving inventory, optimizing cash flow, and improving profitability. It helps businesses avoid overstocking or understocking issues.

4. Using the Calculator

Tips: Enter COGS and average inventory values in dollars. Average inventory is typically calculated as (Beginning Inventory + Ending Inventory) ÷ 2. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good inventory turnover ratio?
A: Ideal ratios vary by industry. Generally, higher ratios are better, but very high ratios might indicate stockouts. Compare with industry averages for context.

Q2: How is average inventory calculated?
A: Average inventory = (Beginning Inventory + Ending Inventory) ÷ 2. For more accuracy, use monthly averages if available.

Q3: What does low inventory turnover indicate?
A: Low turnover may suggest overstocking, slow-moving products, or poor sales. It ties up capital and increases storage costs.

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

Q5: How often should inventory turnover be calculated?
A: Typically calculated annually, but quarterly or monthly calculations can provide more timely insights for inventory management decisions.