![]() This number will help inform how much stock you need to order in the future and how many sales you can expect to make throughout the next year. In this example, it takes 36.5 days to sell through your average inventory ($1,000 worth of books) one time. Take 365 days and divide it by 10 (your inventory turnover rate). From here, you can average out how many days it takes to sell through your inventory one time. In other words, you turned your inventory for that book ten times throughout the year. $10,000 (your COGS) / $1,000 (your average inventory) = 10 (your turnover rate) ![]() If we plug those numbers into the formula, we get: Your beginning inventory is $3,000, your ending inventory is $1,000-so your average inventory is $1,000 ($3,000 – $1,000 and then divided by 2). Let’s say you own a bookstore, and you’re trying to figure out inventory turnover for one of your best sellers. ![]() With those variables identified, you can now use this formula to calculate the inventory turnover rate:Ĭost of goods sold / average inventory = inventory turnover rate Inventory turnover ratio example Cost of goods sold (COGS) = the number on your annual income statement.Average inventory = (the dollar value of beginning inventory + ending inventory) / 2.Timeframe = 1 year (or whatever period you choose).To calculate inventory turnover, let’s define the variables: What is the inventory turnover ratio formula? inFlow now has an improved PO software system. ![]()
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