Specifically, you will have to know the Cost of Goods Sold Provided that you have accurate data available.
INVENTORY TURNOVER HOW TO
How to Calculate the Inventory Turnover Ratio?Ĭalculating the Inventory Turnover Ratio is quite simple, Indicator of the level of syncing between the sales and procurementĭepartments. Therefore, the inventory turnover ratio is also a good
Tying up cash that could be used elsewhere. Of inadequate inventory levels, which could cause missed business opportunitiesĭue to not being able to fill customer orders.Ĭonversely, when the inventory turnover ratio is low, itĬould signify either low sales or overstocking, both of which will negativelyĪffect your bottom line, the former by not bringing in revenue, the latter by Inventory – if inventory turnover is very high, then it might be an indication There is a balance, however, to be found when managing Thus, it is a reflection of how effectively the company caters to the market, and how efficient it is in inventory management. Inventory turnover is an indicator of the performance of the business – if the inventory turnover ratio is high, then usually goods are sold quickly and the company carries little to no excess inventory if inventory turnover is low, sales might be weak and there could be a large amount of excess stock. In manufacturing, the inventory accounted for whenĬalculating the inventory turnover ratio includes finished goods, raw materials, Inventory turnover ratio is the number of times a companyĭepletes and replaces its inventory through sales during an accounting period.
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