1. What is Inventory Turnover Ratio?

The Inventory Turnover Ratio measures how many times a company's inventory is sold and replaced over a period. It indicates the efficiency of inventory management and how quickly goods are moving through the business.

2. How Does the Calculator Work?

The calculator uses the Inventory Turnover Ratio formula:

Where:

• \( COGS \) — Cost of Goods Sold (currency)
• \( Average\ Inventory \) — Average value of inventory held during the period (currency)
• \( Turns \) — Inventory turnover ratio (turns per year)

Explanation: The ratio shows how effectively a company is managing its inventory by comparing the cost of goods sold to the average inventory level.

3. Importance of Inventory Turnover Ratio

Details: A higher turnover ratio generally indicates better inventory management and stronger sales, while a lower ratio may suggest overstocking, obsolescence, or weak sales. This ratio is crucial for assessing operational efficiency and liquidity.

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 turnover ratio in turns per year.

5. Frequently Asked Questions (FAQ)

Q1: What is a good inventory turnover ratio?
A: Ideal ratios vary by industry. Generally, higher ratios are better, but extremely high ratios may indicate stockouts. Compare with industry benchmarks for meaningful analysis.

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

Q3: What does a low turnover ratio indicate?
A: Low turnover may suggest overstocking, slow-moving inventory, poor sales, or obsolete products that need to be written off.

Q4: Can turnover ratio be too high?
A: Yes, extremely high ratios may indicate insufficient inventory levels, leading to stockouts and lost sales opportunities.

Q5: How often should inventory turnover be calculated?
A: Most businesses calculate it quarterly or annually, but it can be monitored more frequently for better inventory control.