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:

• \( \text{Cost of Goods Sold} \) — Total cost of goods sold during the period
• \( \text{Average Inventory} \) — (Beginning Inventory + Ending Inventory) ÷ 2

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 stock levels, and improving cash flow management.

4. Using The Calculator

Tips: Enter Cost of Goods Sold and Average Inventory in dollars. Both values must be positive numbers. Average Inventory is typically calculated as the average of beginning and ending inventory for the period.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Inventory Turnover ratio?
A: It varies by industry. Generally, higher ratios are better, but very high turnover might indicate stockouts, while very low turnover suggests overstocking.

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

Q3: What's the difference between Inventory Turnover and Days Inventory Outstanding?
A: Days Inventory Outstanding = 365 ÷ Inventory Turnover, showing how many days inventory is held before being sold.

Q4: Can Inventory Turnover be too high?
A: Yes, 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 quarterly or annually, but can be monitored more frequently for inventory-intensive businesses.