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 and sales performance.

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: The formula calculates how many times inventory is turned over during a specific period, typically one year.

3. Importance of Inventory Turnover Calculation

Details: Inventory turnover is crucial for assessing inventory management efficiency, identifying slow-moving items, 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 turnover times per year.

5. Frequently Asked Questions (FAQ)

Q1: What is a good inventory turnover ratio?
A: It varies by industry, but generally higher ratios indicate better inventory management. Retail typically has 6-12 turns per year, while manufacturing may have 4-8.

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

Q3: What does a low turnover ratio indicate?
A: Low turnover may indicate overstocking, obsolescence, or poor sales performance, tying up capital in inventory.

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

Q5: How does this differ from days inventory outstanding?
A: Days Inventory Outstanding (DIO) = 365 ÷ Inventory Turnover, showing how many days inventory is held before being sold.