Inventory turn over ratio how to#

Inventory Turnover Ratio = Cost of Goods Sold (COGS) ÷ Average Inventory The formula used to calculate a company’s inventory turnover ratio is as follows.

Calculate Inventory Turnover Ratio → The inventory turnover ratio is determined by dividing the company’s cost of goods sold (COGS) in the current period by the average inventory.Compute Average Inventory → The average inventory is the beginning and ending inventory balance divided by two.Identify the Beginning and Ending Inventory Balances → The beginning of period and end of period inventory balances are recorded on the company’s balance sheet.The steps for calculating the inventory turnover ratio are the following: Thus, the inventory turnover rate determines how long it takes for a company to sell its entire inventory, creating the need to place more orders. The inventory turnover ratio is calculated by dividing the cost of goods sold (COGS) by the average inventory balance for the matching period. 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 a financial metric that portrays the efficiency at which the inventory of a company is converted into finished goods and sold to customers.

Inventory turn over ratio how to#

How to Calculate Inventory Turnover Ratio? The Inventory Turnover Ratio measures the number of times that a company replaced its inventory balance across a specific time period.