This equals 7.5, which you can round off to 8. And in the 3-month period, they process inventory worth $6000 on average. And on average, each inventory intake per cycle amounts to $10,000Įxample 2: Sly Collections, a high streetwear retailer, is unable to calculate its COGS, but knows its quarterly sales value, which is about $45,000 on average. Let’s illustrate some examples to help you get a better grasp of the topic.Įxample 1 : Corel Fashion, an apparel retailer that deals in women’s wear has an average annual cost of goods sold worth $360,000. Typically, the average inventory calculation is done by adding the beginning and ending inventory values for the chosen period and dividing by two.Īverage inventory = (Beginning inventory + Ending inventory)/2Īnother way to go about calculating average inventory is to divide your total sales over a given sales window by your average inventory value. The average inventory is the average value of inventory held over the same period. The cost of goods sold (COGS) represents the direct costs incurred in producing or purchasing the goods that you sell during a given period. Inventory Turnover Ratio Formula = Cost of Goods Sold (COGS) / Average Inventory To calculate inventory turnover, divide the total cost of goods sold (COGS) for a given period by the average inventory value. We will also discuss the benefits and how to calculate it. In this piece, we will be diving a bit deeper to understand what inventory turnover is about. If nothing else, it enables you to figure out your retail prices accurately to ensure optimum profits. You will want to stretch it minimum over a month, or else you might get inaccurate figures.Ĭalculating your inventory turnover, as well as the turnover rates, has many benefits. The period here could be a year, six months, three months – on and on, but rarely a week. Inventory turnover is calculated by dividing the cost of goods sold (COGS) by the average inventory value for a given period. While a high inventory turnover value is indicative of a fast-moving inventory, a low value says the exact opposite. It gives you insight into how fast – albeit slow – your inventories are moving along your sales channels and supply chain. Inventory turnover is an important inventory management metric you need to keep an eye on at all times.
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