1. What is Inventory Turnover?

Inventory turnover is a financial ratio showing 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:

• Cost of Goods Sold (COGS) — Total cost of producing goods sold during the period
• Average Inventory — (Beginning Inventory + Ending Inventory) / 2

Explanation: A higher ratio indicates more efficient inventory management, while a lower ratio may indicate overstocking or obsolescence.

3. Importance of Inventory Turnover

Details: Inventory turnover is crucial for assessing operational efficiency, cash flow management, and identifying potential inventory management issues.

4. Using the Calculator

Tips: Enter COGS and average inventory in dollars. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good inventory turnover ratio?
A: It varies by industry. Higher is generally better, but too high might indicate insufficient inventory.

Q2: How often should inventory turnover be calculated?
A: Typically calculated annually, but can be done quarterly for more frequent monitoring.

Q3: What causes low inventory turnover?
A: Overstocking, poor sales, obsolete inventory, or inefficient inventory management.

Q4: How does this differ from days inventory outstanding?
A: Days inventory outstanding = 365 / inventory turnover, showing how many days inventory is held.

Q5: Should seasonal businesses adjust their calculation?
A: Yes, they may need to use more frequent calculations or adjust for seasonality.