![]() If you can get your inventory turnover ratio to a good number, and adjust your stock levels, you will be able to save money and resources in the process. This ratio is extremely helpful for businesses as wasting inventory and stock is essentially like throwing money out the window. For example, if your inventory turnover is very low, you are buying too much stock and not getting rid of it fast enough. On top of this, it lets you know if your inventory management is in line with what it should be in order to maximize your profits. Indeed, your inventory turnover tells you how much and how often you are selling things in your restaurant or bar. Inventory turnover can tell you a lot of different things about your restaurant and can give you insights about where your financials are going right and wrong, making it an important ratio to calculate.Ī company’s inventory turnover is actually a good indicator of how well the business is doing and how efficient it is. ![]() For example, if in a 365-day period you sold 2 Million $ worth of goods, and your average inventory price was 200,000 $, here is how you should calculate the inventory turnover: To calculate inventory turnover you have to divide the costs of goods sold (COGS), by the average inventory value for the given time period. ![]() Inventory turnover = Net sales/Average inventory at selling price When you have this information, you can input your numbers into the inventory turnover formula. To be able to calculate stock turnover, you need to know the cost of goods sold (COGS) in the period of time that you are calculating for as well as the average cost of your inventory for that same time. In order to accurately calculate inventory turnover, there is a simple formula that you can use. This means that there is a demand for what your company is selling. When calculating inventory turnover ratio, you should be hoping to see a high number as it will indicate that your business is doing well and your inventory is sold quickly in any given time period. It also gives you insight into your purchasing habits and whether you are over or under buying your inventory. A high inventory turnover means you are selling things at a quick rate. Inventory turnover refers to how often a restaurant sells and has to restock their inventory. 8 How to optimize inventory turnover ratio.6 Is high inventory turnover good or bad?.5 What is a good inventory turnover ratio?.3 What does inventory turnover tell you?.2 How do you calculate inventory turnover?.They “purchased” it at point of use in WIP, and immediately shipped the finished goods… so (in my view) their “turns” was phony. They manufactured Pool Pumps… OH… did I mention that the “Inventory” was supplier managed? So… their “Inventory” was not really ever inventory. I once had a customer who bragged about their inventory turns of 220 (basically daily turns), but then I saw their Inventory of purchased motors. (which is typically hidden in a pure Inventory report.) Also, in an MTO world, you have to be careful because inventory “Should” include WIP value. if you ignore total inventory of raw materials, and look only at the finished goods, their turns would be incredibly high (good) becuase nothing is ever in stock. I can see how Distribution companies would/could have a different measurement than manufacturing companies… But, I know of multiple manufacturing companies where they have a small number of finished goods parts that actually ship (fixed asset companies) but MANY raw materials that make up their inventory. this 4th example is fairly easy to do with a BAQ… calculating for a year would take a more more complicated, and in reality needs to have a table (executive query table?) that captures the month end inventory numbers each month, so that you could get the “average monthly value of inventory”. So… if you always build up inventory to the same value as you sell each month, then you will have 12 turns, because you build the inventory, then sell it.īut, if at the end of each month, you always have enough inventory to sell for one year, then you only have one turn.īelow is a screenshot of attached spreadsheet that you can use to do some playing… the first three tables show various examples of 12 turns, 1 turn, and 144 turns… the 4th table shows how you can theoretically calculate turns using only one months worth of data… you can do this by taking COGS for the month, Multiplying by 12 (to extrapolate Yearly turns) and then dividing that by the month end inventory. Here is the way that I have always understood Turns… it is the Number of times that you turn over inventory during a set period.
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