Remember that inventory turnover ratio is just one metric you need to look at to assess your company’s performance.Be careful not to include any expenses that aren’t directly related to the sale of merchandise, such as shipping costs or sales taxes. Use the right numbers when calculating the cost of goods sold.Otherwise, you won’t be comparing apples to apples. Make sure you’re using the same time frame for both the cost of goods sold and the average inventory. There are a few things to keep in mind when calculating inventory turns: A low turnover rate, on the other hand, could be a sign that the company is sitting on a lot of unsold inventory, which can tie up cash that could be used for other purposes. The turnover rate is important for businesses because it gives them an idea of how quickly they are selling their inventory and how efficiently they are using their resources.Ī high turnover rate is usually a good thing, as it means that the company is selling its products quickly and efficiently. Inventory Turns) is a financial ratio that shows how many times a company has sold and replaced its inventory in a specified period. This means that your company is selling its merchandise more quickly and is not tying up as much money in inventory. The higher your company’s inventory turnover rate, the better. This will give you the number of times that your company’s inventory turns over in a given period. To calculate this rate, simply divide the cost of goods sold by the average inventory. The average inventory is the average value of all the merchandise that your company has on hand during that same period. The cost of goods sold is the total value of all the merchandise that your company sells in a given period. To calculate inventory turnover, you need to know two things: the cost of goods sold and the average inventory.
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