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In accounting, the inventory turnover is a measure of the number of times inventory is sold or used in a time period such as a year. It is calculated to see if a business has an excessive inventory in comparison to its sales level. The equation for inventory turnover equals the cost of goods sold divided by the average inventory.
For example, organizations in the U.S. define inventory to suit their needs within US Generally Accepted Accounting Practices (GAAP), the rules defined by the Financial Accounting Standards Board (FASB) (and others) and enforced by the U.S. Securities and Exchange Commission (SEC) and other federal and state agencies. Other countries often have ...
The average inventory is the average of inventory levels at the beginning and end of an accounting period, and COGS/day is calculated by dividing the total cost of goods sold per year by the number of days in the accounting period, generally 365 days. [3] This is equivalent to the 'average days to sell the inventory' which is calculated as: [4]
Asset turnover or asset turns, a financial ratio that measures the efficiency of a company's use of its assets in generating sales revenue; Customer attrition, the rate at which a business loses customers, sometimes called the churn; Inventory turnover or inventory turns, a measure of the number of times inventory is sold or used in a time period
Asset turnover [21] Net Sales / Total Assets Stock turnover ratio [22] [23] Cost of Goods Sold / Average Inventory Receivables Turnover Ratio [24] Net Credit Sales / Average Net Receivables Inventory conversion ratio [5] 365 Days / Inventory Turnover Inventory conversion period Inventory / Cost of Goods Sold ...
Examples include non-durable household goods such as packaged foods, beverages, toiletries, candies, cosmetics, over-the-counter drugs, dry goods, and other consumables. [2] [3] [4] Fast-moving consumer goods have a high inventory turnover and are contrasted with specialty items, which have lower sales and higher carrying charges.
Inventory planning involves using forecasting techniques to estimate the inventory required to meet consumer demand. [ 1 ] [ 2 ] [ 3 ] The process uses data from customer demand patterns, market trends , supply patterns, and historical sales to generate a demand plan that predicts product needs over a specified period.
While it is sometimes used interchangeably, inventory management and inventory control deal with different aspects of inventory. Inventory management is a broader term pertaining to the regulation of all inventory aspects, from what is already present in the warehouse to how the inventory arrived and where the product's final destination will be. [2]