Inventory turnover – what is it?
Inventory turnover is an indicator of how often inventory is sold and replaced with new inventory over a specified period of time. It is a key measure of inventory management efficiency that allows companies to assess how effectively they are using their resources to generate revenue. Inventory turnover helps analyze a company’s liquidity and operational efficiency.
A high inventory turnover indicates that goods find buyers quickly, which in turn minimizes storage costs and the risk of products becoming obsolete or damaged. This state of affairs also suggests that the company is effectively anticipating market needs and adjusting its orders accordingly to meet demand. Low turnover, on the other hand, can suggest problems such as overstocking, faulty demand forecasts, inappropriate pricing or poor product quality, which can lead to lower profit margins.
To calculate inventory turnover, the following formula can be used:
Inventory turnover = cost of goods sold/average inventory.
By this measure, companies can make better purchasing, production and inventory management decisions. Monitoring inventory turnover is key to optimizing logistics processes and improving operational efficiency. In the context of dynamic markets, effective inventory turnover also contributes to increased competitiveness and improved customer satisfaction.
Frequently asked questions
1 What are the benefits of monitoring inventory turnover?
Benefits include better inventory management, reduction of storage costs and minimization of the risk of overdue goods.
2 What are the methods for calculating inventory turnover?
Methods include the inventory turnover ratio (the ratio of the cost of goods sold to the average value of inventory) and inventory life cycle analysis.
