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So, the key to success is establishing a system that consistently monitors your inventory levels. The goal is to have a clear and up-to-date picture of the quantity and value of goods on hand. Now, let’s shift our focus to your inventory.
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Identify and gather every component contributing to the creation or acquisition of your goods. Start by peeling back the layers of your financial statements. Grab your detective hat and magnifying glass (or just your regular glasses, that works too) because it’s time to dig into your financial records to identify and gather your COGS data.Īccurate COGS data is the cornerstone of calculating inventory turnover, so the secret is to leave no stone unturned when analyzing your balance sheets. Let’s take a more in-depth look at calculating COGS, stock levels, and how to pick the best inventory turnover timeframe. Unsurprisingly, nailing how to calculate inventory turnover begins with meticulously gathering the right data sets so you have accurate figures to plug into the formulas above. How to calculate inventory turnover: A step-by-step guide
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Number of units sold / Average number of units on hand = Inventory turnover rate.In addition to using financial metrics, you can also calculate inventory turnover ratios by looking at SKU units using the following formula: Cost of Goods Sold (COGS) / Average Inventory Value = Inventory turnover ratio.To crack the code and discover how to calculate inventory turnover, all you need is a couple of simple formulas: What are the basics of calculating inventory turnover? Plus, by keeping your capital constantly reinvested where it’s needed most, you can avoid the treadmill of excess inventory costs. Inventory turnover rate can help you assess - and address - efficiencies such as:įinancial agility is your all-expenses paid (literally!) ticket to business success, so using a no-nonsense metric like inventory turnover as a guiding compass is one of the best ways to fine-tune operations. Aside from being a reliable indicator of overall organizational health, your inventory turnover rate can also help you assess efficiency. Inventory turnover is the straight-talking rockstar of financial metrics, indicating the number of times your inventory is sold and replaced in a specific time period. Ready to wave goodbye to guesswork and say hello to more informed decision-making? Let’s dive in. In this article, we’ll demystify the complexities of the product lifecycle and help you learn how to calculate inventory turnover accurately, once and for all. However, for many small and medium-sized business owners, mastering inventory turnover can be like trying to solve a Rubik’s Cube – challenging, sometimes frustrating, but rewarding when you’ve cracked it. Managing the ins and outs of inventory for an ecommerce business is fundamental to survival - and success. BY Linzi Trafford How to calculate inventory turnover: A guide for SMBs