Inventory Turnover Ratio

The Inventory Turnover Ratio computes the inventory turnover ratio based on the beginning and end inventories and the cost of goods.

INSTRUCTION: Choose units and enter the following:

• (CoG) Cost of Goods
• (BI) Value of Beginning Inventory
• (EI) Value of End Inventory

Inventory Turnover Ratio (ITR): The calculator returns the ratio as a real number.  However this can be automatically converted to a percent via the pull-down menu. 

The Math / Science

The Inventory Turnover Ratio reveals how many times inventory turns over (is sold and replaced) in a period.  The formula for inventory turnover ratio

   ITR = CoG/((BI+EI)/2)

where:

• ITR = Inventory Turnover Ratio
• CoG =  Cost of Goods 
• BI = Beginning Inventory
• EI = Ending Inventory

Some definitions of Inventory Turnover use Net Sales instead of Cost of Goods Sold.

Ratios that that trend lower should be investigated -- they may reveal slow moving inventory.

The Accounting Ratio Calculator provides numerous standard equations used in business accounting, including the following:

• Best Possible Days Sales Outstanding - gives useful insight into delinquencies, as it considers only Current Receivables.
• Current Ratio - A liquidity ratio that measures the ability to pay short-term liabilities.
• Days Sales Outstanding - tests the efficiency of the conversion of receivables into cash.
• Debt to Equity Ratio - measures how a company is leveraging its debt against the resources of its owners.
• Inventory Turnover Ratio - reveals how many times inventory turns over in a period
• Net Cash Flow from Operations - Net income - Increase in Receivables + Increase in Payables.
• Quick Assets - cash and assets that can be converted quickly to cash
• Quick Ratio (aka Acid Test) - measures the ability to pay short-term liabilities with cash and assets quickly convertible to cash
• Stockholder's Equity - sum of Common Stock at Par, Premium on Common Stock, Preferred Stock at Par, Premium on Preferred Stock and Retained Earnings

Retail Calculator

• Average Inventory is computed by dividing the sum of the merchandise inventory taken during one year by the number of such inventories.
• Asset(/Stock) to Sales Ratio is used to compare how much in assets a company has relative to the amount of revenues the company can generate using their assets.
• Quick Ratio aka Acid Test is a liquidity ratio that measures the ability to pay short-term liabilities with cash and assets quickly convertible to cash.
• Break-Even Analysis equation shows the point in business where the sales equal the expenses.
• Cost of Goods Sold is simply the difference between the cost of goods available for sale and the ending inventory.
• Gross Profit is the difference between the net sales (or revenue) and the cost of goods or services sold. It is also known as the gross margin or Sales profit.
• Gross Profit Percentage is the difference between the net sales and the cost of goods sold (or services rendered) divided by the net sales times a hundred.
• Gross Profit Margin measures how much of each sales dollar is used to finance the direct inputs required to manufacture or merchandise the product sold.
• Gross Margin Ratio equation is used to compute the profitability of a company on selling its inventory or merchandise.
• Gross Margin Return on Investment [GMROI] calculation can be used to measure the performance the entire shop, but it is more effective if used for a particular department or category of merchandise.
• Inventory Turnover Ratio reveals how many times inventory turns over (is sold and replaced) in a period.
• Initial Markup % is the comparison of the amount of money, expressed as a percentage of initial cost, that a retailer adds to the price of goods.
• Maintained Markup reveals the impact of markdowns (reductions) on the Initial Markup.
• Maintained Markup Percentage is the percentage of net sales.
• Markup is the difference between cost of a good or service and its selling price.
• Net Sales is the sales revenue less sales returns and allowances and sales discounts.
• Open-To-Buy  is the difference between how much inventory is needed and how much is actually available.
• Reductions are the combined cost of making a specified product/service cheaper or less in amount.
• Retail Price is the price at which the manufacturer recommends that the retailer sell the product.
• Sales per Square Foot is most commonly used for planning inventory purchases.
• Sell-Through Rate/Analysis is the selling activity of a product within a defined period of time.
• Total Stock Return is the appreciation in the price plus any dividends paid, divided by the original price of the stock.