Question 1

What is a good inventory turnover ratio?

Accepted Answer

A good ratio depends on your industry. Retail businesses typically aim for 4-8 times per year, while manufacturing might target 2-4 times. Higher ratios generally indicate better inventory management.

Question 2

How do I calculate inventory turnover manually?

Accepted Answer

Divide your cost of goods sold (COGS) by your average inventory. Average inventory is calculated as (beginning inventory + ending inventory) ÷ 2.

Question 3

What does days in inventory mean?

Accepted Answer

Days in inventory shows how many days it takes to sell your entire inventory. It's calculated as 365 days divided by the inventory turnover ratio.

Question 4

Why is inventory turnover important?

Accepted Answer

High turnover indicates efficient inventory management, better cash flow, and lower carrying costs. Low turnover may suggest overstocking, obsolescence, or poor sales.

Question 5

How can I improve my inventory turnover?

Accepted Answer

Strategies include better demand forecasting, faster inventory turnover of slow-moving items, improved supplier relationships, and implementing just-in-time inventory systems.

Question 6

What's the difference between inventory turnover and stock turnover?

Accepted Answer

They are the same concept - both measure how quickly inventory is sold and replaced. The terms are used interchangeably in business and finance.

Question 7

Can inventory turnover be too high?

Accepted Answer

Yes, extremely high turnover might indicate stockouts, lost sales, or insufficient safety stock. The optimal ratio balances sales efficiency with customer service levels.

Inventory Turnover Calculator