inventory turnover formula operations management

#Inventory turnover formula operations management how to

Let’s say you want to calculate your average inventory for your business by evaluating a three-month period:

#Inventory turnover formula operations management how to

Related: How to Calculate Days in Inventory (With Examples) Example average inventory calculation You could similarly track the average of inventory each day, or any other time period using this formula. To calculate average inventory, add the beginning and ending inventory values and divide by the total time period:Īverage inventory = (Beginning inventory + Ending inventory) / Time periodĪ common calculation of average inventory is over a single month:Īverage inventory = (Inventory at the beginning of the month + Inventory at the end of the month) / 2 Related: What Is Inventory Management? Definition and Example Techniques How to calculate average inventory: formula A low inventory turnover shows sales are declining and there may be decreasing demand for those products. A high inventory turnover is good because it indicates a high demand for goods the company must frequently restock. Inventory turnover refers to the number of times a business sells and replenishes its stock of goods over a certain period of time. Instead of using the total number of items in stock each month, you use the total value of those items to determine the figure used. The average inventory can also represent the typical value of inventory available over a certain period of time. This is done by comparing the year-to-date revenue statement with a YTD average inventory calculation. You can use an average inventory calculation along with monthly revenue statements to determine how much inventory the business needs to support sales. Taking a mean average over two or more months gives a better picture of how much inventory is normally available. It’s commonly calculated by adding the beginning period inventory balance to the ending period inventory balance and dividing the number of accounting periods.īusinesses usually count inventory at the end of the month, but this number may be affected by a large end-of-month delivery of stock or a spike in outgoing stock. View more jobs on Indeed View More What is average inventory?Īverage inventory is a calculation businesses use to estimate how much inventory they typically have available over a certain period of time.