1. What is Inventory Turnover?

Inventory Turnover is a financial ratio that shows how many times a company has sold and replaced inventory during a given period. It measures how efficiently a company manages its inventory.

2. How Does the Calculator Work?

The calculator uses the Inventory Turnover formula:

Where:

• \( \text{Sales} \) — Total sales revenue (currency)
• \( \text{Average Inventory} \) — (Beginning Inventory + Ending Inventory)/2 (currency)

Explanation: The ratio indicates how quickly inventory is sold and replaced over a period. Higher turnover generally indicates better performance and lower holding costs.

3. Importance of Inventory Turnover

Details: Inventory turnover is crucial for assessing operational efficiency, identifying obsolete inventory, and managing cash flow. It helps businesses optimize inventory levels and reduce holding costs.

4. Using the Calculator

Tips: Enter sales and average inventory in the same currency units. All values must be positive numbers. The result is expressed in "turns" (number of times inventory is sold and replaced).

5. Frequently Asked Questions (FAQ)

Q1: What is a good inventory turnover ratio?
A: It varies by industry. Higher ratios are generally better, but too high might indicate stockouts. Compare with industry benchmarks.

Q2: How is this different from using COGS?
A: Some formulas use COGS instead of Sales. This version is simpler when COGS data isn't available, but may overestimate turnover.

Q3: How often should I calculate inventory turnover?
A: Typically calculated annually, but can be done quarterly or monthly for more frequent analysis.

Q4: What affects inventory turnover?
A: Sales volume, purchasing practices, seasonality, and inventory management efficiency all impact turnover.

Q5: How can I improve my inventory turnover?
A: Better demand forecasting, reducing obsolete stock, improving sales, and optimizing reorder points can help.