Inventory Turnover Ratio Calculator

Formula

The formula to calculate the Inventory Turnover Ratio (I) is:

\[ \text{I} = \frac{\text{COGS}}{\frac{\text{BI} + \text{EI}}{2}} \]

Where:

$\text{I}$ is the inventory turnover ratio
$\text{COGS}$ is the cost of goods sold ($)
$\text{BI}$ is the beginning inventory ($)
$\text{EI}$ is the ending inventory ($)

What is Inventory Turnover Ratio?

The inventory turnover ratio is a measure of how quickly a business can turn inventory into sales. A higher turnover ratio indicates that the company is better at converting on sales and moving inventory once it’s on the shelf. This information can be used to compare with other companies in the industry and to understand if the company is stocking too little or too much product.

If the ratio is high, the company is likely stocking too little product, while a low ratio indicates excess stock and a need to reduce it.

Example Calculation

Let's assume the following values:

Cost of Goods Sold (COGS) = $500,000
Beginning Inventory (BI) = $50,000
Ending Inventory (EI) = $70,000

Using the formula:

\[ \text{I} = \frac{500,000}{\frac{50,000 + 70,000}{2}} = \frac{500,000}{60,000} \approx 8.33 \]

The Inventory Turnover Ratio (I) is approximately 8.33.