What is meant by inventory turnover?

Inventory turnover is a financial ratio showing how many times a company has sold and replaced inventory during a given period. Calculating inventory turnover can help businesses make better decisions on pricing, manufacturing, marketing, and purchasing new inventory.

What is a good inventory turnover rate?

The golden number for an inventory turnover ratio is anywhere between 2 and 4. If the inventory turnover ratio is low, it can mean that there could be a decline in the popularity of the products or weak sales performance.

What is inventory turnover measured in?

Inventory turnover is a ratio that measures the number of times inventory is sold or consumed in a given time period. Also known as inventory turns, stock turn, and stock turnover, the inventory turnover formula is calculated by dividing the cost of goods sold (COGS) by average inventory.

What is average inventory turnover ratio?

The inventory turnover ratio is calculated by dividing the cost of goods sold for a period by the average inventory for that period. Average inventory is used instead of ending inventory because many companies’ merchandise fluctuates greatly throughout the year.

What is a good inventory turn number?

For many ecommerce businesses, the ideal inventory turnover ratio is about 4 to 6. All businesses are different, of course, but in general a ratio between 4 and 6 usually means that the rate at which you restock items is well balanced with your sales.

How to calc inventory turns?

Method 1 of 3: Calculating Inventory Turnover Ratio Learn the definition of inventory turnover ratio. Inventory turnover means how many times a business sells and replaces its inventory in a given period of time. Determine the cost of goods sold. The cost of goods sold is the direct expense associated with providing a service or producing a product. Determine the average inventory.

What is the formula to calculate inventory turnover?

Formula for the Inventory Turnover Ratio. Inventory Turnover = Cost Of Goods Sold / ((Beginning Inventory + Ending Inventory) / 2) The calculation of inventory turnover can also be done by dividing total sales by inventory.

Is high inventory turnover good or bad?

Generally, a low inventory turnover ratio will signal bad sales or surplus inventory, which can be interpreted as poor liquidity, overstocking and even, obsolescence. A high inventory turnover ratio, on the other hand, will indicate good sales or buy in small amounts.