Your average inventory is the average of your starting and ending stock levels for the period. It is the average amount of inventory carried during a certain time period. Average stockĪverage stock is also called average inventory. This can help you spot trends and assess the health of your business.īefore we dive into the inventory turnover formula, it’s helpful to define some inventory terms. In fact, you might want to look at past inventory turn rates and compare them to your current inventory turnover ratio. Calculating your stock turnover ratio will give you clear direction on how much to order. If this sounds confusing or vague, don’t worry it isn’t. That’s a sign that your sales are less than expected or that you ordered too much at once. On the other hand, your stock might take a whole year to turn over. If your inventory turns over 12 times in a year, that indicates that you sold and replaced your entire stock every month. High turnover indicates that your products are selling well. The goal is to have high inventory turnover. The inventory turnover ratio is a measure of how quickly products sell once they are placed in stock. So, understanding your inventory turnover ratio can help you grow your business and increase your profits. That can reduce your ability to spend on marketing to grow your business. For example, you might have too much money tied up in inventory. And how well you manage your stock levels will make a difference to the long-term success of your company. However, it’s more important as an indicator of how you manage your inventory. Your inventory turnover rate does reflect whether or not a product is selling well.
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