Measure how many times your stock is sold and replaced over time
Cost Data
Inventory Levels
Inventory Turnover Ratio
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What is Inventory Turnover?
The Inventory Turnover Ratio shows how efficiently a company manages its inventory. A higher ratio generally implies strong sales or effective inventory management, while a low ratio may indicate overstocking, obsolescence, or deficiencies in the product line. To calculate it, we divide the Cost of Goods Sold (COGS) by the Average Inventory for that period.
- Efficiency: High turnover means you aren't letting cash sit idle on shelves in the form of unsold goods.
- Storage Costs: The faster you turn over inventory, the less you spend on warehouse rent, insurance, and handling.
- Perishability: For businesses selling food or fashion, a high turnover is critical to avoid waste or "out-of-style" stock.
What is a "Good" Turnover Ratio? +
It varies by industry. A grocery store might have a ratio of 15-20 (very high), while a car dealership might have a ratio of 2-3. Compare your ratio with industry averages to see where you stand.
How do I calculate Average Inventory? +
This tool does it for you! It takes the (Beginning Inventory + Ending Inventory) and divides it by 2. This smooths out any seasonal spikes.
Is a very high ratio always good? +
Not necessarily. If your turnover is *too* high, you might be keeping too little stock, which can lead to frequent "Out of Stock" messages and lost customers.
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