Alternatively, you can use the highest and lowest month-end inventory dollar values. Rather, you can add the beginning-of-year and end-of-year inventory dollar values and divide by two. It’s not necessary or practical to figure the average based on day-to-day or hour-to-hour levels. To be honest, average inventory is approximated. Using average inventory to calculate stock turn will yield more accurate results. Thus, in order to reflect precise and accurate figures, an average is used in the calculation. It can be disproportionately high at one point in the year and disproportionately low at another. The term “average inventory” is noteworthy because, at any specific time, the value of your inventory can drastically change. Inventory turnover = cost of goods sold (COGS) ÷ average inventory The formula used for determining retail inventory turnover is: Comparing your business to a benchmark (competition)Ĭalculating inventory turnover for retail business.Maintaining appropriate stocking levels.Understanding how frequently every item in stock is sold, can improve your operations in a variety of ways, some of them include: In simpler terms, it helps you to see how fast each product is selling out. The formula for calculating inventory turnover describes the sales of a particular item, compared to inventory held, over a specific period. The inventory turnover ratio is a numerical representation of your company’s inventory turnover. A comprehensive view of any situation will allow you to make more sound decisions. So, measuring inventory turnover annually allows you to get a more comprehensive view of the issue.
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