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Inventory turnover ratio measures how efficiently a company uses its inventory by dividing the cost of goods sold by the average inventory value during a set period.
To calculate inventory turnover, all you have to do is divide your COGS by your average inventory value. Inventory turnover is a ratio used to express how many times a company has sold or...
Simply put, the inventory turnover ratio measures the efficiency at which a company can convert its inventory purchases into revenue. The inventory turnover ratio is calculated by dividing the cost of goods sold (COGS) by the average inventory balance for the matching period.
Inventory turnover is the rate that inventory stock is sold, or used, and replaced. The inventory turnover ratio is calculated by dividing the cost of goods by average inventory for the same period.
You can calculate the inventory turnover ratio by dividing the inventory days ratio by 365 and flipping the ratio. In this example, inventory turnover ratio = 1 / (73/365) = 5. This means the company can sell and replace its stock of goods five times a year.
The inventory turnover ratio is arrived at using the following formula: Inventory turnover ratio = Value of materials consumed during the period / Value of average stock (or inventory held during the period)
The basic formula is: Inventory Turnover Ratio = Cost of Goods Sold (COGS) / Average Inventory. Here’s a step-by-step breakdown: Determine the cost of goods sold (COGS): This figure is typically available on a company’s income statement. It includes all costs associated with producing or purchasing inventory sold during the period.
The inventory turnover ratio formula is calculated by dividing the cost of goods sold for a period by the average inventory for that period. Average inventory is used instead of ending inventory because many companies’ merchandise fluctuates greatly throughout the year.
Use the formula: Inventory Turnover Ratio = COGS / Average Inventory. What is considered a good inventory turnover ratio? A good inventory turnover ratio varies by industry, but generally, a ratio between 4 and 6 is considered healthy, indicating efficient inventory management.
To calculate inventory turnover ratio, divide cost of goods sold by average inventory over a period of time. A higher ratio is usually better than a lower one.