![]() ![]() You can also quickly convert this to obtain the number of days a turn takes. Where average inventory = (beginning inventory - end inventory) / 2 inventory turnover ratio = COGS / average inventory You can use the following formula to calculate inventory turns for a given period of time. You can use whatever timeframe you prefer, but it’s common to use yearly, quarterly, or monthly data. The average inventory can be calculated by adding the beginning and end inventories for the period and dividing by 2. To calculate the inventory turnover ratio, divide the cost of goods sold (COGS) for a given period by the average inventory for that same period. For example, the finance and service sectors have the highest averages for inventory turnover. If you work with intangibles, inventory turnover can be exceptionally high. However, the values themselves change drastically depending on various factors. Generally speaking, higher values are preferred by all interested parties. However, what “high” and “low” means will vary significantly by industry and business model. A low ratio can indicate low sales or overstocking. However, too high a value could indicate a higher likelihood of stock shortages. What is a Good Inventory Turnover Ratio?Ī high ratio indicates that your products sell well since inventory is used quickly. Values calculated using net sales can be significantly and misleadingly higher. When comparing ratio values, remember to check whether they were calculated using the same method. However, the latter is usually preferred, as using the value for COGS provides a more accurate result. There are different methods available to find the inventory turnover ratio, using net sales or cost of goods sold (COGS). This value can also be recalculated so that it is expressed in days. The inventory turnover ratio indicates how many times inventory was replenished during a specific timeframe. Inventory turnover shows how quickly a company uses its inventory. ![]()
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