![]() ![]() You can use the formula of inventory turnover ratio to find out how many days it would be required for your business to sell out the total inventory in hand. The inventory turnover ratio tells you how fast the company replaces its inventory by converting it to sales. However, the companies that produce luxury goods are known to produce at a lower inventory turnover because of low demand for their products and higher production time. It tells you how good the company is at managing its inventory.Ĭompanies involved in consumer durable goods generally have a higher inventory turnover due to high demand for their products. To calculate it, you need to divide the COGS by the average inventory for the specific time period. Using this, you can easily determine the rate at which you require inventory for sale before the end of a month.īasically, inventory turnover is a metric that measures how often a company replaces its inventory. To explain in simple terms, inventory turnover reveals the number of times your inventory is sold during a certain time frame in relation to its cost of goods sold (COGS). Keep reading to know all that you need to, on this topic. In this article, we have discussed everything you need to know about the inventory turnover ratio like its formula, tips, examples, limitations, calculations, and more. ![]() There can be many instances when companies face irregularities with their inventory because of miscalculations of the average inventory and inventory turnover ratio that is supposed to be maintained throughout an accounting period. Whenever there is talk about inventory, you should take precautionary steps so that the rate of loss can be minimized to a certain level. ![]() The inventory turnover ratio is the most important component of inventory management. ![]()
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