#Inventory turnover ratio how to

Now that you have the three key numbers we need for COGS, we can calculate it. At the end of the six-month period, we count our inventory again and we have 80 pounds of unroasted green coffee beans. Throughout the six-month period, we receive 500 pounds of unroasted green coffee beans. Let’s say we have 100 pounds of unroasted green coffee beans at the outset. In this example, let's pretend we’re a coffee roasting company calculating inventory turnover ratio for pounds of coffee over a six-month period. To calculate inventory turnover ratio, we need COGS and average inventory.

#Inventory turnover ratio how to

How to Calculate Inventory Turnover Ratio: Example Let’s walk through it step-by-step with an inventory turnover equation example. Once you have your COGS and average inventory, the inventory turnover formula is simple: Inventory Turnover Ratio = Cost of Goods Sold (COGS) / Average Inventory Here’s how to calculate average inventory level: (Beginning Inventory + Ending Inventory) / 2Īll it is is the sum of beginning and ending inventory-from a specific time period-divided by two. Average the InventoryĪverage inventory is the estimation of the value ($) or number (units) of certain types of inventory at any given time over a set time period. If you don’t, here’s how to calculate COGS and how to calculate ending inventory. Two things allow you to figure out how to calculate inventory turnover ratio.

Whereas inventory turnover ratio tends to be used for longer time frames, like quarters or years. And it’s typically calculated for shorter inventory periods, like weeks or months. It’s similar to the inventory turnover ratio meaning, but it relates inventory to total sales, not COGS. The stock to sales ratio formula is: Stock to Sales Ratio = Inventory Stock ($) / Sales ($) Stock to sales ratio is an inventory management metric that shows the relationship between the value of your stocked inventory (from using inventory costing methods ) and the value of your sales over a given period of time.