Inventory Turnover

Inventory Turnover – Inventory Turnover is an accounting and warehousing formula that determines whether stored product is being sold or delivered at industry rates.  Low turnover indicates problems with sales or buying issues.  High turnover is generally a very good sign, because storage and management costs are reduced.  If the high turnover is not within industry ranges, there could be other factors affecting turnover, such as theft.  The formula for inventory turnover is: the cost of goods sold divided by the average inventory.  Average inventory is the beginning inventory plus the ending inventory (each month) divided by two.