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John Morris

How to calculate inventory turnover?

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Inventory turnover shows the frequency with what a store renew its stock in a period of time. In order to calculate Inventory turnover, we need to know COGS and Average Inventory.

COGS or "Cost of goods sold" represent the total cost of inventory. COGS include all necessary costs for ag to appear like material, production, tools necessary in production but exclude transportation and marketing costs.

Average inventory is calculated by summing beginning inventory and ending inventory (of a period of time) and dividing by 2.

For example, if a store has COGS $100,000 per year and Average inventory 2,000 then the inventory turnover is 50. It means that in 365 days inventory renews 50 times, at every 7.3 days. In this case, the inventory turnover is quite high and can be interpreted as rapid sales or as low purchases for inventory.

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