How to Calculate Inventory Turnover?

What is the inventory turnover ratio?

The inventory turnover ratio measures how efficiently a company sells and replaces its inventory during a period. It indicates the number of times inventory is sold and replaced per year.

How do you calculate inventory turnover?

Divide annual cost of goods sold by the average inventory level. The average inventory equals (beginning inventory + ending inventory) / 2.

What is a good inventory turnover ratio?

The average inventory turnover ratio varies by industry. As a benchmark, retail is around 3-4x, grocery 12x, and auto parts 15-20x per year.

Why is the inventory turnover ratio important?

It shows how well purchasing and sales teams work together. It also indicates if inventory levels match sales rate. Tracking it helps optimize stock levels.

How can you improve inventory turnover?

Ways to improve low inventory turnover include forecasting demand better, running promotions, automating inventory management, replenishing top sellers faster, and pricing inventory optimally.

What happens if inventory turnover is too high?

An extremely high turnover over 20x may indicate inadequate inventory levels leading to stockouts. Some safety stock may help prevent losing sales.

What does low inventory turnover signify?

Low turnover under 3x can signal excess inventory tying up too much capital. It may require reduced purchases, improved marketing to stimulate sales, price adjustments, or newer inventory.