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:

• \( \text{COGS} \) — Cost of Goods Sold
• \( \text{Average Inventory} \) — (Beginning Inventory + Ending Inventory) / 2

Explanation: The ratio divides the cost of goods sold by average inventory to show how efficiently inventory is being managed.

3. Importance of Inventory Turnover

Details: A higher ratio indicates better inventory management and stronger sales. A lower ratio may indicate weak sales or excess inventory.

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. Generally, higher is 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 or monthly for more frequent analysis.

Q3: What affects inventory turnover?
A: Sales volume, inventory management efficiency, and industry norms all affect the ratio.

Q4: How does this differ from days inventory outstanding?
A: Days inventory outstanding shows how many days inventory is held before being sold, while turnover shows how many times inventory is sold and replaced.

Q5: Can turnover be too high?
A: Yes, extremely high turnover might mean you're not keeping enough inventory to meet demand.