Calculate inventory turnover

Calculate inventory turnover

Calculate inventory turnover : Multi-thousand tips to make your life easier.

Inventory turnover is a ratio of how much money a company makes every time they clear their "shelves". The inventory turnover also indicates how fast a company sells its products and refills its displays. When calculating inventory turnover, you are calculating the inventory turnover ratio.

Below are easy steps showing you how to calculate inventory turnover for the inventory turnover ratio.

• Get the total cost of goods sold. To calculate inventory turnover, you need the cost of goods already sold and the value of the inventory on hand. You can calculate the cost of goods already sold by taking the value of one item in the inventory, writing down how much it was sold for, then multiplying it by how many of the same item at the same cost were sold. For instance, if a company sold 700 jars of peanut butter, and one jar of peanut butter costs $2.99, multiply $2.99 by 700. We then get $2,093.00. This is the total cost of goods sold.
• Get the value of the inventory on hand. The inventory on hand consists of the items that are still in stock. You can get the value of on-hand inventory by writing down the value of one of the items still in the company's possession and multiplying it by how many are still in the company's storage. For instance, if the same company that sells peanut butter has 500 jars waiting to hit the shelves, and one jar sells for $2.99, multiply $2.99 by 500. The resulting value, $1,495.00, is the value of the inventory on hand.
• Divide. Divide the total cost of goods sold by the value of the inventory on hand. In the example above, the total cost of goods sold is $2,093.00 while the value of the inventory on hand is $1,495.00. Divide $2,093.00, the total cost of goods sold, by the value of the inventory on hand, $1,495. The result is 1.4, which is the inventory turnover or inventory turnover ratio.

Inventory turnover is the ratio that determines the number of times a company sells a set of products and replaces them. The inventory turnover ratio is also an indicator of how efficient a company is at emptying and refilling its shelves or displays. Using the steps listed above, you can calculate the inventory turnover ratio of any company, if you know the total cost of the goods the company sold and the value of the inventory the company has in its stock room.

Inventory turnover is a good indicator of how well a product is selling. If the inventory turnover is a high number, it means the product "flies off the shelf" and that many people who enter the store or the display room for that product like the product and therefore buy it. A high inventory turnover ratio is not always a good sign of business, however, as there might be limited supplies of the item. Supplies should always meet demand. If it is your company for which you did inventory turnover, make sure that you keep up with the demand for the product indicated by a high inventory turnover ratio.