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The inventory turnover ratio can be calculated by dividing the cost of goods sold by the average inventory for a particular period. Retail stores and grocery chains typically have a much higher inventory turn rate because they sell lower-cost products that spoil quickly, requiring far greater managerial diligence.Using Coca-Cola as an example again, divide 365—the number of days in a year—by the company's inventory turn ratio, which was 4.974. Inventory turnover ratio calculator measures company's efficiency in turning its inventory into sales, the number of times the inventory is sold and replaced. The inventory turnover rate for this period is calculated by:A company has the following figures on their books:The ratio provides management with insight into inventory purchasing and sales performance. This includes a company's markup and can lead to a different result. Inventory turnover represents the number of times a company sells its inventory and replaces it with the new stock over the course of a certain time period, such as a quarter or year. The time it takes a company to sell its inventory can vary greatly by … We calculate inventory turnover by dividing … Inventory turnover is always calculated over a specific period of time — this can be anything from a single day to a fiscal year — even the entire lifespan of the business. In this example, inventory turnover ratio = 1 / (73/365) = 5. However, inventory turnover can't be an instantaneous snapshot of a business's performance. Inventory Turnover Ratio formula is: The inventory turnover ratio is calculated by dividing the cost of goods sold for a period by the average inventory for that period.Average inventory is used instead of ending inventory because many companies’ merchandise fluctuates greatly throughout the year. If the two are not in sync, it will ultimately show up in the inventory turnover ratio.Average inventory is used in the ratio so as to account for the normal seasonal ebb and flow of sales. You can calculate the inventory turnover ratio by dividing the inventory days ratio by 365 and flipping the ratio.
Normal Ratios Vary by Industry.
Inventory Turnover Ratio is frequently used together with Days in Inventory ratio. Dividing 13.256 million by 2.665 million equals 4.974 million—Coca-Cola's total number of inventory turns for that year.
The ratio result can tell you how effectively the company sells and how well it manages its costs. It's not likely that the company's inventory has an issue with losing value with such strong economics.Inventory Turnover = Cost of Goods Sold / Average Inventory for the PeriodIt's also useful to examine how the inventory turnover calculation changes for a company over a period of many years.Add the current inventory balance to the previous period's inventory balance and divide by two to get the average inventory balance.Some analysts use total annual sales instead of the cost of goods sold. Hardware companies might turn their inventory three or four times a year, while department stores might turn their inventory six or seven times per year. Choose a time period for your calculation. The ratio can show us the number of times and inventory has been sold over a particular period, e.g., 12 months.