1. What is Inventory Turns Ratio?

The Inventory Turns Ratio, also known as inventory turnover, measures how many times a company's inventory is sold and replaced over a period. It indicates the efficiency of inventory management and how quickly goods are moving through the supply chain.

2. How Does the Calculator Work?

The calculator uses the Inventory Turns formula:

Where:

• \( COGS \) — Cost of Goods Sold ($)
• \( Avg\ Inventory \) — Average Inventory Value ($)

Explanation: The ratio divides the cost of goods sold by the average inventory value to determine how many times inventory is turned over during the period.

3. Importance of Inventory Turns Calculation

Details: Inventory turnover is a critical financial metric that helps businesses assess inventory management efficiency, identify slow-moving items, optimize stock levels, and improve cash flow by reducing excess inventory.

4. Using the Calculator

Tips: Enter COGS and average inventory in dollars. Both values must be positive numbers. Average inventory is typically calculated as (Beginning Inventory + Ending Inventory) ÷ 2.

5. Frequently Asked Questions (FAQ)

Q1: What is a good inventory turnover ratio?
A: The ideal ratio varies by industry. Higher ratios generally indicate better performance, but extremely high ratios may suggest stockouts. Compare with industry benchmarks for accurate assessment.

Q2: How is average inventory calculated?
A: Average inventory = (Beginning Inventory + Ending Inventory) ÷ 2. For more accuracy, use multiple inventory points throughout the period.

Q3: What does a low inventory turnover indicate?
A: Low turnover may indicate overstocking, poor sales, obsolete inventory, or ineffective marketing strategies that need addressing.

Q4: Can inventory turnover be too high?
A: Yes, extremely high turnover may indicate inadequate inventory levels leading to stockouts, lost sales, and dissatisfied customers.

Q5: How often should inventory turnover be calculated?
A: Typically calculated annually, but quarterly or monthly calculations can provide more timely insights for inventory management decisions.