Inventory Turns, also known as Inventory Turnover, is the number of times you sell your inventory each year. It’s an important measurement because it allows you to assess if you’re selling through or “turning over” your inventory quickly enough. Usually, slow inventory turnover is a sign of sales weakness.The steps for calculating inventory can vary a bit depending on whether a business is in retail or manufacturing, and how your company’s accounting processes work. Here’s the basic way to calculate your inventory’s turnover.
Instructions
Calculate Inventory Turnover
1. Decide the reporting period you want to analyze. The reporting period can be any time interval you select—monthly, quarterly, or annually.
2. Tally the inventory on hand, and multiply the number of units by the Cost of Goods per unit to get total Cost of Goods sold for that reporting period.
3. Divide the cost of goods sold (COGS) for the reporting period by average inventory investment during the period. Use the formula: Inventory Turnover = COGS Sold from Stock Sales during the reporting period / Average Inventory Investment during the reporting period.If the cost of goods you have sold during the reporting period is $1000, and your average inventory investment is $100, then your your finished products inventory turnover ratio is 10 ($1000 / $100 = 10). This means that you are selling out or turning over your inventory 10 times during the reporting period.
