Inventory Turnover Ratio Calculator – Find Formula, Check Example, Calculate & more

You will come across all the information of the Inventory Turnover Ratio and the Inventory Turnover Ratio Calculator in this article.

Product-based companies are in general required to maintain a fine level of inventory, to meet up with the operational services.

Anything and everything which is further used in the manufacturing process, including the finished goods fall into inventory and are taken into account for inventory management.

Now, how effectively and efficiently the company is able to manage the inventory, reflects upon the sales, higher the efficient management, higher is the sales revenue and vice versa.

Inventory Turnover Ratio Calculator

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Inventory Turnover Ratio Calculator Details

To study about the formula we need a couple of factors which are as follows:

• Cost of goods sold
• Average inventory

Average inventory can be computed in a number of ways, among one is adding up the inventory level of each month, and dividing it by 12 at the end of the year, or by average inventory as per the start of the financial period and the end of the same fiscal year.

The cost of goods sold is the cost incurred by the company all the while the sale process is carried on. It includes literally every expense which accounts to sales.

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Inventory Turnover Ratio Calculator Product Details

The factors are the foundation upon which lies the successful commutation of the formula inventory turnover ratio.

If you lay the foundation, you will have the end product sooner, which is the product. In this formula we have reportedly 2 products, one of which is the formula – inventory turnover ratio, whereas the other is the days in inventory.

The first product is very well explained with the formula further in the article, whereas the days in inventory refers to the metric which evaluates the present stock, and how long will it stay with the company before it gets entirely sold out.

How to use the Inventory Turnover Ratio Calculator?

The tough part will be gone if you have access to the factors. If you take care of the factors, we assure you we have the way of obtaining the product sorted. The calculator which we have attached with this article is the insurance of our claim, of having the product sorted.

Yes, and we do not speak of a regular calculator, we have this special calculator which is embedded with the inventory turnover ratio, at the end of the article.

Scroll down and enter in the factor details very well, in their respective fields and the calculator will find out the product for you in a matter of seconds.

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Example of Inventory Turnover Ratio Calculator Usage

Suppose a company has cost of goods sold amounting to Rs.500000, whereas its average inventory stands to be Rs.60000.

The formula is:

Inventory Turnover Ratio = Cost of Goods Sold / Avg. Inventory

Let us get to the working of the above given example:

Inventory Turnover Ratio = 500000 / 60000

We first need to find the inventory turnover ratio, which can be used to further solve the days to inventory. So, with an inventory turnover ratio of 8.33, the company will be able to sell its inventory in around 44 days, which is obtained by dividing 365 to 8.33.

What is the use of Inventory Turnover Ratio Calculator?

The ability of the company in putting in and out the inventory, is backed up with various strategies and efforts. If the company is able to get fruitful returns, it will be reflected upon the inventory ratio, in the form of a higher value.

If the inventory holds a lower value, the ratio conveys how poor the company in performing in terms of sales, which further leads to a decline into the demand of the products the company trade in.

Simultaneously, a further lower ratio and a greater ratio indicates, there has been an imbalance in the inventory as compared to the demand which prevails in the market for the company’s products.

Inventory Turnover Ratio Calculator Formula

Here is the formula of future value we have been speaking of.

An Inventory is made, and then it is sold following which a replacement is made. This entire turnover happens in the company once in a while and the higher rate at which this happens for a year, the higher shall be the sale rate and the profit, of course.

The ratio helps the analyst study the effective execution of strategies relating to cost and sales in context with the inventory valuation, and if they need a rebound, because they lag behind.

Inventory Turnover Ratio – Conclusion

Efficient management of stock leads to quicker sales, and so is it accompanied with effective sales strategies.

Companies want their products to be in high demand, which will in turn increase the income for them, and this is the reason why they opt to keep track of the inventory turnover ratio.

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