Inventory turn is calculated by
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High inventory turns indicate that a company is effectively managing its inventory, while low inventory turns suggest that a company may be carrying too much inventory or not selling products quickly enough. Inventory turns are an important metric for businesses because they provide insight into the efficiency of a company's inventory management.
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This means that the company's inventory is sold and replenished every five months. This is because the average inventory value will change over time as a company's inventory levels fluctuate.įor example, if a company has a COGS of $500,000 and an average inventory value of $100,000, the inventory turns would be 5. It is important to note that the average inventory value should be based on the beginning and ending inventory values of the period in question. Inventory Turns = COGS / Average Inventory Inventory turns are calculated by dividing the annual cost of goods sold (COGS) by the average inventory value over the same period. It is an important metric for businesses because it helps them to understand how efficiently they are managing their inventory. Inventory turns measure how quickly a company's inventory is being sold and replenished. In this article, we will explore what inventory turns are, how to calculate them, and why they are important for businesses. The higher the inventory turns, the more efficiently a company is managing its inventory. It is calculated by dividing the annual cost of goods sold by the average inventory value over the same period. Inventory turns, also known as stock turnover, is a metric used to measure the efficiency of a company's inventory management.