![]() Which is the best Inventory Turnover Ratio? Your choice depends on which one gives you a better view of your business performance. The two methods will also give you different results but are both credible. To calculate for a specific time frame, account for the time period as well. It is less detailed and less accurate than the first method and includes factors like markup. This method offers a more general view of the turnover. Inventory turnover ratio= Sales ÷ Ending inventory The second method is the sales and ending inventory method. Turnover period= 365 ÷ Inventory turnover ratio So, your formula for a turnover period will be: ![]() For instance, if you do it yearly, it’s 365 days. To find the number of days it takes you to sell your goods, consider the time frame you are targeting. You can calculate it by:Īverage inventory = (Beginning Inventory + Ending inventory) ÷ 2 An average is necessary because inventory fluctuates overtime. You can calculate it by:ĬOGS= Beginning Inventory + Net Inventory Purchases – Ending inventoryĪverage inventory is how much inventory is present in the business at every point in time. ![]() The Cost of Goods sold (COGS) is the Cost of sales you make in a given period. This ratio indicates the relationship between how much you spend purchasing the goods and how often you do so. Inventory turnover ratio= Cost of goods sold ÷ Average inventory There are 2 main methods of calculating the inventory turnover ratio.ĭividing the Cost of goods sold over the average inventory. How to calculate inventory turnover ratio How to optimize inventory turnover for better ratios.Limitations to using Inventory turnover ratio to make business decisions.Why should you calculate the inventory turnover ratio?.Which is the best Inventory Turnover Ratio?. ![]() How to calculate inventory turnover ratio?.This post will help you understand how it works Table of Contents The inventory turnover ratio is an essential metric for making business decisions. Thus, the turnover ratio indicates how many times you acquire new inventory in a given period. Inventory turnover broadly refers to how often a company changes its inventory, either by sales or replacement. ![]()
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