![]() You must save this data and revisit it regularly. ![]() This isn’t a formula that a business calculates once and never looks at again. In this case, the inventory turnover rate is 0.8 (or 8, for easy reference). Here’s what the inventory turnover formula will look like: Let’s say a company has a COGS of $100 million and an average inventory of $125 million. Inventory turnover ratio exampleĪn example of the inventory turnover ratio calculation in action can make it easier to understand. This can include materials costs, labor expenses, utilities, and more. The cost of goods sold includes all expenses related to the production of your company’s goods or services. ![]() You’ll have to calculate two numbers to do the inventory turnover calculation: COGS and average inventory.Īverage inventory (which you get by adding the beginning inventory and ending inventory and dividing that number by 2) is vital because your company’s inventory can fluctuate throughout the year.įor example, a big-box retailer may stock up on more inventory to accommodate higher sales around a high-volume period of time like Black Friday or Christmas.
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