InventoryTurns.com

 

We give an overview of inventory turns and inventory accuracy. .

Inventory Turns is one of the key metrics that companies use to manage their inventory. Inventory Turns or  Inventory Turnover is the number of times that inventory cycles or turns over per year.

The Inventory Turns Calculation: A frequently used method is to divide the Annual Cost of Sales by the Average Inventory Level.

Example: For 2003, the ABC Widget company has a Cost of Sales = $36,000,000.
The company's Average Inventory during this time = $6,000,000.
             $36,000,000 / $6,000,000 = 6 Inventory Turns

 Inventory turnover ratio uses the cost of items (what you paid for them) not sales dollars (what you sold them for).

To calculate the average inventory, record your inventory level at the beginning and midway through the month (some companies do this daily). Then calculate your average using the same inventory costing you use to calculate the Cost of Sales.

Back to our inventory turnover example above: 6 Inventory turns....is this a poor performing company or is it world class? That depends on the industry. Grocery chains have a much higher inventory turnover ratio since they are selling products that is perishable. Companies that manufacture heavy machinery, would have a much lower inventory turnover rate. You will probably want to benchmark your findings against like companies to see how you compare. An unfavorable Inventory Turnover Ratio may highlight an area to target for improvement.

Another way to view your inventory turns is to look at the Projected Inventory Turns. This is done by dividing the "Total Cost of 12 Month Sales Plan" by the "Total Cost of Goal Inventory"
Example: The Total Cost of 12 Month Sales Plan is $40,000,000. Total Cost of Goal Inventory = $8,000,000
            $40,000,000 / $8,000,000 = 5 Projected Turns

An overview of how to calculate Inventory Accuracy

Inventory Turns for Raw Materials

Check back soon for additional inventory links

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The information on this website is the opinion of the webmaster. It should NOT be used as the sole information source for determining inventory turns / accuracy. If you have any questions about inventory turns or inventory accuracy, we strongly recommend that .you work with a qualified professional.