![]() The average inventory is the average value of inventory held over the same period. The cost of goods sold (COGS) represents the direct costs incurred in producing or purchasing the goods that you sell during a given period. ![]() Inventory Turnover Ratio = Cost of Goods Sold (COGS) / Average Inventory To calculate inventory turnover, divide the total cost of goods sold (COGS) for a given period by the average inventory value. We will also discuss the benefits and how to calculate it. In this piece, we will be diving a bit deeper to understand what inventory turnover is about. If nothing else, it enables you to figure out your retail prices accurately to ensure optimum profits. You will want to stretch it minimum over a month, or else you might get inaccurate figures.Ĭalculating your inventory turnover, as well as the turnover rates, has many benefits. The period here could be a year, six months, three months – on and on, but rarely a week. Inventory turnover is calculated by dividing the cost of goods sold (COGS) by the average inventory value for a given period. While a high inventory turnover value is indicative of a fast-moving inventory, a low value says the exact opposite. It gives you insight into how fast – albeit slow – your inventories are moving along your sales channels and supply chain. ![]() Inventory turnover is an important inventory management metric you need to keep an eye on at all times.
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