Sunday, February 22, 2009

Calculate Inventory Turnover Ratio

In accounting, the inventory turnover ratio displays how many times inventory was sold or turned over by a company during a fiscal year. The equation for inventory turnover is listed below:

Inventory Turnover Formula:

Inventory Turnover= COGS/Inventory

The inventory turnover ratio is normally compared with firms operating in the same industry. A low turnover ratio typically poor sales performance and excessive amounts of unsold inventory. On the other hand, a high turnover ratio represents strong sales or under-purchasing by the company.

Useful External Links:
American Express Inventory Turnover Calculator

Related Accounting Tutorials:
Dealing with Seasonal Changes in Inventory
FIFO Method and Weighted Average Inventory Method
Perpetual Inventory System
Basic Equation for Inventory Accounts
Inventory Cost Flow Assumptions
Accounting Inventory Shrinkage Example Problem
Merchandising Accounting Journal Entry

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The information on this site is for informational purposes only and should not be used as a substitute for the professional advice of an accountant, tax advisor, attorney, or other professional.