Inventory Turnover Rate Calculation

Results:

Turnover Ratio 0

Days Sales in Inventory (DSI) 0

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Understanding Inventory Turnover Rate

The inventory turnover rate is a critical financial metric that measures how many times a company has sold and replaced its inventory during a specific period. It is a key indicator of supply chain efficiency, sales performance, and capital management.

The Formula

To calculate the ratio, we use the following standard business logic:

1. Average Inventory: (Beginning Inventory + Ending Inventory) / 2
2. Inventory Turnover Ratio: Cost of Goods Sold (COGS) / Average Inventory
3. Days to Sell Inventory: 365 / Inventory Turnover Ratio

Why This Metric Matters

A high turnover rate generally implies strong sales or effective inventory management. However, if the turnover is too high, it might mean the company is losing out on sales because it doesn't have enough stock (stockouts).

A low turnover rate often indicates weak sales, overstocking, or obsolescence in the product line. This ties up cash flow that could be used elsewhere in the business.

Practical Example

Imagine a retail store with the following annual data:

• COGS: $1,200,000
• Beginning Inventory: $150,000
• Ending Inventory: $250,000

First, find the Average Inventory: ($150,000 + $250,000) / 2 = $200,000.

Next, divide COGS by Average Inventory: $1,200,000 / $200,000 = 6.0.

This means the store clears its entire inventory 6 times per year, or roughly every 60.8 days.

Industry Benchmarks

Turnover rates vary wildly by industry. A grocery store might see a turnover of 15-20 because food is perishable, whereas a luxury car dealership might have a turnover rate of 2 or 3. It is always best to compare your results against competitors in your specific niche.

function calculateInventoryTurnover() { var cogs = parseFloat(document.getElementById('cogs').value); var beginInv = parseFloat(document.getElementById('beginInv').value); var endInv = parseFloat(document.getElementById('endInv').value); var resultsArea = document.getElementById('resultsArea'); var turnoverRatioDisplay = document.getElementById('turnoverRatio'); var dsiDisplay = document.getElementById('dsiResult'); var interpretation = document.getElementById('interpretation'); if (isNaN(cogs) || isNaN(beginInv) || isNaN(endInv) || cogs < 0 || beginInv < 0 || endInv 10) { text = "High Turnover: You are moving stock very quickly. Ensure you are not experiencing frequent stockouts."; } else if (turnoverRatio >= 4) { text = "Healthy Turnover: This is a standard range for many retail businesses, indicating efficient stock movement."; } else { text = "Low Turnover: Stock is sitting longer than average. Consider reviewing your purchasing strategy or running promotions."; } interpretation.innerText = text; resultsArea.style.display = "block"; }