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:

• \( COGS \) — Cost of Goods Sold (dollars)
• \( Average\ Inventory \) — Average inventory value during the period (dollars)

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

3. Importance of Inventory Turnover

Details: Inventory turnover 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 and Average Inventory in dollars. 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. 5-10 turns per year is often considered good for many retail businesses.

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 turnover 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 inventory turnover be calculated?
A: It should be calculated regularly (monthly or quarterly) to monitor inventory management performance and make timely adjustments.