By December, almost the entire inventory is sold, and the ending balance does not accurately reflect the company’s actual inventory during that year. For instance, a company might purchase a large number of quantities of inventory on January 1 and sell that for the rest of the whole year. It is always a good method to use average inventory instead of taking only ending inventory because many companies’ inventory fluctuates greatly throughout the year.
The inventory turnover ratio can be calculated by dividing the cost of goods sold for a particular period by the average inventory for the same period of time.Ĭost of goods sold = Beginning Inventories + Cost of Goods Manufactured in a company – Ending InventoriesĪverage Inventories = Beginning Inventories + Ending Inventories) / 2
It also states that it would take Luxurious Furniture Company approximately 3 years to sell its entire inventory or complete one turn.
This means that Luxurious Furniture Company only sold roughly a third of its inventory during the current year. Inventory Turnover Ratio = $1,000,000 / $3500000Īs you can see, Luxurious Furniture Company’s turnover is.Inventory Turnover Ratio = Cost of Goods Sold/ Average Inventory.Then, we calculate Inventory Turnover Ratio using the Formula. Average Inventories = Beginning Inventories + Ending Inventories) / 2.
#Inventory turnover rate download#
You can download this Inventory Turnover Ratio Template here – Inventory Turnover Ratio Template
0 kommentar(er)
