It can be calculated as sales divided by average inventory. The company can be able to divide the number of days in the period by the inventory turnover formula to calculate the days it takes to sell the inventory on hand.
A company with $2,000 of average inventory and sales of $40,000 effectively sold its 20 times over. In simple words, it shows how many times a company can be sold the company’s total average inventory amount during one year. This helps you to measure how many times the average inventory ratio is sold or turned during a particular period. The inventory turnover ratio is a simple ratio that helps to show how effectively inventory can be managed by comparison between average inventory and cost of goods sold for a particular period. Inventory turnover ratio is a ratio that shows how many times a company has replaced and sold inventory during a period, say one year, five years, or ten years. It shows how fast can a company replaces a current period batch of inventories and transforms it into sales to find a balance that is right for your business. Inventory turnover ratio is important as well as efficient ratio formula. Inventory Turnover Ratio Formula helps you in finding a balance that is right for your business which will lead to making a profit in business.
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