Here’s what the inventory turnover formula will look like: Let’s say a company has a COGS of $100 million and an average inventory of $125 million. Inventory turnover ratio exampleĪn example of the inventory turnover ratio calculation in action can make it easier to understand. This can include materials costs, labor expenses, utilities, and more. ![]() The cost of goods sold includes all expenses related to the production of your company’s goods or services. You’ll have to calculate two numbers to do the inventory turnover calculation: COGS and average inventory.Īverage inventory (which you get by adding the beginning inventory and ending inventory and dividing that number by 2) is vital because your company’s inventory can fluctuate throughout the year.įor example, a big-box retailer may stock up on more inventory to accommodate higher sales around a high-volume period of time like Black Friday or Christmas. Divide it by the average inventory within that same period.Take the cost of goods sold (COGS) within a given period.You can use a formula to calculate it, giving you an exact number to go by. The inventory turnover ratio isn’t a matter of guesswork. How to calculate the inventory turnover ratio Alternatively, if a product is seeing strong sales, you might stock up on similar products to boost the amount of inventory you have. Another option is to find different suppliers. Purchasing: If your inventory is selling too quickly, you may need to increase the number of times you replenish orders.Marketing: If inventory is moving slowly, do you need to ramp up your marketing? You might put a product in the spotlight, making it more visible to buyers. ![]()
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