1. What is Inventory Turns?

Inventory turns, also known as inventory turnover, measures how many times a company's inventory is sold and replaced over a period (typically one year). It indicates the efficiency of inventory management and how quickly goods are moving through the supply chain.

2. How Does the Calculator Work?

The calculator uses the Inventory Turns formula:

Where:

• \( COGS \) — Cost of Goods Sold (total cost of inventory sold during the period)
• \( Avg\ Inventory \) — Average inventory value during the period
• \( Turns \) — Number of times inventory is turned over per year

Explanation: This ratio shows how efficiently a company is managing its inventory. Higher turns indicate better performance and faster inventory movement.

3. Importance of Inventory Turns Calculation

Details: Calculating inventory turns helps businesses optimize inventory levels, reduce carrying costs, improve cash flow, identify slow-moving items, and make better purchasing decisions. It's a key performance indicator for retail, manufacturing, and distribution businesses.

4. Using the Calculator

Tips: Enter COGS and average inventory in the same currency units. Both values must be positive numbers. The calculator will compute the annual inventory turnover rate.

5. Frequently Asked Questions (FAQ)

Q1: What is a good inventory turnover ratio?
A: Ideal ratios vary by industry. Generally, higher is better, but very high ratios may indicate stockouts. Retail typically aims for 4-6 turns, while manufacturing may be 8-12 turns annually.

Q2: How do I calculate average inventory?
A: Average inventory = (Beginning inventory + Ending inventory) ÷ 2 for the period. For annual calculations, use monthly averages for better accuracy.

Q3: What if my inventory turns are too low?
A: Low turns suggest overstocking, obsolete inventory, or poor sales. Consider implementing just-in-time inventory, improving demand forecasting, or running promotions.

Q4: Can inventory turns be too high?
A: Yes, extremely high turns may indicate insufficient inventory levels leading to stockouts, lost sales, and poor customer service.

Q5: How does this differ from days inventory outstanding?
A: Days inventory outstanding = 365 ÷ Inventory turns. It shows how many days inventory is held before being sold, providing another perspective on inventory management efficiency.