What is Inventory Turnover Ratio in inventory management ?
Inventory turnover is the rate at which a company converts its inventory into sales
Where inventory is the total of all goods in its stock which includes Raw material, Brought out parts, Work in progress and Finished goods.
It is better to maintain inventory turnover to be higher. A higher inventory turnover means more and quick sale
But lower inventory turnover indicates fewer sale and less demand for the products.
Inventory Turnover Ratio = Cost of goods sold / Average inventory
Number of days inventory means how many days it takes for inventory to convert (turn) in to sale. It is the inverse of inventory turnover ratio.
is the average of start inventory and end inventory in a year.
Cost of goods sold
is the production cost of goods which includes Raw material cost, Labor cost and company overheads.