![]() ![]() By doing so, you can spot trends and make changes to improve your bottom line. It’s a good idea to calculate your inventory turnover rate regularly to keep track of your company’s performance. The inventory turnover ratio is an important metric for businesses, especially those in the retail and manufacturing industries. By looking at all these factors together, you’ll get a more complete picture of how your company is doing. It’s also a good idea to look at other measures, such as gross margin and return on investment. Other important inventory-centered metrics are inventory accuracy, days on hand inventory, and inventory-to-sales ratio. Be careful not to include any expenses that aren’t directly related to the sale of merchandise, such as shipping costs or sales taxes.įinally, remember that the inventory turnover ratio is just one warehouse KPI metric you can use to assess your company’s performance. It’s also important to use the right numbers to calculate the cost of goods sold. Otherwise, you won’t be comparing apples to apples. Ensure you’re using the same time frame for both the cost of goods sold and the average inventory. When calculating your inventory turnover rate, the most important thing is to use consistent data. In that case, a lower inventory turnover ratio might be just fine. If your company sells products with a long shelf life, you might not want to sell them too quickly. A ratio of 4 or above is usually considered excellent. A ratio of 2 or above is usually considered good. In general, though, a higher inventory turnover ratio is better than a lower one. That’s because people need to eat more often than buy a new car. For example, companies selling perishable goods like food will have higher inventory turnover ratios than those selling durable goods like cars. There’s no magic number for a good inventory turnover ratio. What Does a Good Inventory Turnover Ratio Look Like? That would give you an inventory turnover ratio of 2 ($100,000 / $50,000). Inventory Turnover = Cost of Goods Sold / Average Inventoryįor example, let’s say that your company’s cost of goods sold for the year was $100,000 and its average inventory for that year was $50,000. Once you have them, you can plug them into this formula: You’ll need to look at your company’s financial statements to get these numbers. ![]() It’s a good idea to look at other measures as well, such as gross margin and return on investment.īy following these tips, you can be sure that you’re calculating your inventory turnover rate accurately and getting the most out of this important metric. Remember that inventory turnover ratio is just one metric you need to look at to assess your company’s performance.Be careful not to include any expenses that aren’t directly related to the sale of merchandise, such as shipping costs or sales taxes. Use the right numbers when calculating the cost of goods sold.Make sure you’re using the same time frame for both the cost of goods sold and the average inventory. There are a few things to keep in mind when calculating inventory turns: A low turnover rate, on the other hand, could be a sign that the company is sitting on a lot of unsold inventory, which can tie up cash that could be used for other purposes. The turnover rate is important for businesses because it gives them an idea of how quickly they are selling their inventory and how efficiently they are using their resources.Ī high turnover rate is usually a good thing, as it means that the company is selling its products quickly and efficiently. Inventory Turns) is a financial ratio that shows how many times a company has sold and replaced its inventory in a specified period. This means that your company is selling its merchandise more quickly and is not tying up as much money in inventory. The higher your company’s inventory turnover rate, the better. ![]() This will give you the number of times that your company’s inventory turns over in a given period. To calculate this rate, simply divide the cost of goods sold by the average inventory. The average inventory is the average value of all the merchandise that your company has on hand during that same period. The cost of goods sold is the total value of all the merchandise that your company sells in a given period. To calculate inventory turnover, you need to know two things: the cost of goods sold and the average inventory. ![]()
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