Shows how many days it takes to sell the average inventory. It is defined as the ratio of the product of the average inventory and the number of days in a month to the turnover for this period. For example, the average inventory of washing powder was 160 units, and sales were 320 units. This means that the turnover will be: 160*31/320 = 15.5 (days), i.e. it takes 15.5 days to sell the average stock of this powder.

Please note that the turnover rate itself does not allow you to draw any conclusions. It is analyzed in dynamics, for example, if the turnover was 10 days, but became 15, then this indicates that it is necessary to reduce the quantity of imported goods or increase sales. If, on the contrary, this indicator decreased, the goods began to turn around faster.

Estimate the ratio of turnover in days and the credit period for the goods. If provided for 30 days, and the turnover period is 15 days, during this period we will return the invested funds and will be able to pay off the debt. If the loan was provided for 10 days, and the turnover was 15 days, then to repay the loan we will have to use borrowed money, since the investment in the goods will not yet be returned.

Another conclusion you can draw from turnover is to evaluate the frequency of inventory replenishment. With a product turnover of 15 days, the stock must be replenished twice a month.

Turnover in times indicates how many times the product has been turned around, i.e. was sold. It is calculated as the ratio for the period to the average stock of goods for this period. For example, the stock of washing powder was 160 pieces, and sales were 320 pieces, which means that the turnover will be equal to: 320/160 = 2, i.e. The stock of goods will be fully sold twice a month.

Sources:

• Inventory turnover ratio

Turnover indicators refer to the business activity ratios of an enterprise. They are calculated by economic services and credit institutions to assess the efficiency of an enterprise's use of existing assets. In this case, five main turnover ratios are most often calculated.

Instructions

To calculate a company's turnover, divide the revenue for the period by the balance sheet total. The meaning of this coefficient is simple: the resulting value will show how many times during the period a complete cycle of turnover of all assets occurs. It is also calculated to see how much money each asset brought in.

The coefficient of inventories - inventories (, products) - reflects the speed of sale of these inventories. You can calculate inventory turnover by dividing the cost of goods sold by the average annual inventory value. To convert the coefficient into days, divide the number of days in the period by the resulting indicator. The higher this ratio is, the better, since it directly reflects the liquidity of the enterprise’s inventory.

To calculate the company's accounts payable turnover, divide the cost of goods sold by the amount of debt. Both debt turnover ratios can be calculated in days. To do this, divide the number of days in the period by the resulting indicator. Thus, you will see how many days the company needs to pay accounts receivable or pay off accounts payable.

The fixed asset turnover ratio shows the level of investment in fixed assets and the amount of cash that each unit of funds brings. To calculate fixed asset turnover, divide revenue by the period's average cost of fixed assets.

Sources:

• calculate the velocity of money circulation

Turnover ratios occupy one of the most important places among economic indicators by which the success and efficiency of any enterprise is assessed. They are calculated both by internal services of the organization for control, and by external appraisers, for example, banks, when analyzing the creditworthiness of the company.

Instructions

For turnover, you will need data from two main documents reflecting the financial company:
Balance sheet, from which you will take the value of specific assets;
Profit and Loss Statement (P&L), which shows the volume of revenue and products sold.

When they talk about the need to calculate turnover, they mean the importance of assessing how effectively the company uses its existing assets, goods and other property. Each asset used contributes to final revenue and the turnover ratio is used to measure this contribution. In this case, five types of such fixed assets of a company are most often calculated.

Calculation of inventory gives the company the opportunity to analyze how much goods were stored in the warehouse during the reporting period, how much goods the company was able to sell, and in what quantity of what type of goods new purchases will be required.

You will need

• balance sheet or other form of inventory accounting, contracts with suppliers and customers, calculator, notepad, pen

Instructions

Calculate beginning inventory. This indicator can be found in the enterprise for the previous period or in another form of inventory accounting. The indicator at the end of the previous year is usually carried forward to the beginning of the current period. Let’s say that sewing company “X” stores material worth a total of 1,678,000 rubles in its warehouse.

Calculate the sales amount. This parameter must reflect the amount of sales that the organization was able to make at the beginning of the period. Let’s say that the fabric store “Igrek” bought material worth 630,000 rubles from the clothing company “X”.

Calculate inventory using the formula:
TZ = NTZ + Z – P, where
TZ - inventory, NTZ - initial inventory, Z - purchases, P - sales.
In the above example, TK = 1,678,000 + 590,000 – 630,000 = 1,638,000 rubles.

note

Sources:

• Inventory calculation
• how to calculate commercial products

The physical volume index is used along with other economic indicators to objectively assess the effectiveness of an enterprise's production policy. This concept characterizes the change in product turnover during the reporting period compared to previous ones.

Instructions

Specialists in the economic department of any enterprise use an index system for analyzing core activities. Economic indices act as characteristics and are relative values ​​of the dynamics of processes associated with the production and sale of products.

Physical volume index is the process of changing the value of trade turnover. Data for two periods, reporting (current) and base, are used as time parameters for comparison. As a rule, this is an annual period, less often – quarterly.

The reporting period is the time period that has passed from the last calculations to the closing day of the period, inclusive. A reference period is a period of time in the past for which data has already been calculated and presented in previous or earlier reports.

To determine the physical volume index, trade turnover data is used, namely the number of units of production. Since enterprises often produce not one, but several types of goods, the values ​​are multiplied by prices and added up by type of product.

The formula for the physical volume index is as follows: Iv = Σ(N1*C0)/Σ(N0*C0), where N1 and N0 are the number of units of products that were sold during the reporting and base periods, respectively; c0 – prices of the base period.

Everything that sits in or moves toward a restaurant's warehouse is a current asset. But these are also frozen funds, the return of which the business owner is looking forward to. To understand how long it takes for money to be “taken out” of circulation and invested in inventories, an analysis of inventory turnover is carried out.

If there is a product, then this is certainly good, but only until there is too much of it. The warehouse is full of goods - taxes are paid on the inventory, but it sells too slowly. Then they say that the turnover of goods is low. But if it is very high, it means that the product is selling quickly, too quickly. Then the guest, coming to the restaurant, runs the risk of not tasting the chosen dish. The answer is the ability to analyze and plan inventory turnover.

General concepts

GOODS – products that are bought and sold; it is part of inventory. A service can also be a product if restaurant guests pay money for it (delivery, packaging, storage of valuables, etc.).

INVENTORY is a list of company assets (goods, services) available for sale. In a restaurant, inventory includes not only the food in warehouses, but also the dishes on hand, household supplies, as well as dishes and tablecloths if you rent them out—everything that can be sold.

If we are talking about INVENTORY, then these are considered to be goods in transit, goods in the warehouse and goods in accounts receivable (since ownership of them remains until it is paid for by the buyer, and theoretically the goods can be returned to the restaurant warehouse for subsequent sale).

BUT!: to calculate turnover, goods in transit and goods in accounts receivable are not taken into account - only the goods present in the warehouse are important.

AVERAGE INVENTORY STOCK (TZav) is the value that, in fact, is required for analysis. TZav for the period is calculated according to formula 1.

TZsr"= , Where (1)

TK 1 , TK 2 , … TK n – the amount of inventory for individual dates of the analyzed period (in rubles, dollars, etc.);

n – number of dates in the period.

Example

The calculation of the average inventory (TZav) for the year for a coffee shop is given in table. 1. The average technical specification for 12 months will be 51,066 rubles.

TABLE 1 – Calculation of average inventory

Amount of inventory on the first day of the month

Serial number of the period

designation in the formula

Data in formula

TZ av =(22940+40677+39787+46556+56778+39110+45613+58977+56001+56577+71774+26939)/(12-1)=561729/11=51066 rub.

There is also a simplified formula for calculating average balances:

TZsr" = (balances at the beginning of the period + balances at the end of the period)/2 (2)

In the above example, TZav" will be equal to (45,880 + 53,878)/2 = 49,879 rubles. However, when calculating turnover, it is still better to use the first formula (it is also called the average chronological moment series) - it is more accurate.

TRADE TURNOVER (T) – the volume of sales of goods and provision of services in monetary terms for a certain period of time. Trade turnover is calculated in purchase prices or cost prices. For example: “The restaurant’s turnover in December amounted to 40,000 rubles.” This means that in December goods worth 39,000 rubles were sold and services were also provided for home delivery of goods worth 1,000 rubles.

Michael R. Lewis is a former corporate executive, entrepreneur and investment advisor from Texas. Worked in business and finance for over 40 years.

Number of sources used in this article: . You will find a list of them at the bottom of the page.

For a company selling products, it is very important to be able to manage inventory in order to make a profit from its activities. Calculating the inventory turnover period allows you to understand how well the company is doing in terms of inventory. With this information, you can compare your company's inventory turnover period with that of your competitors. A shorter inventory turnover period will indicate higher inventory turnover and better return on assets. Calculating the inventory turnover period requires knowledge of the cost of goods sold for the period and the average cost of inventory for this period. To calculate the inventory turnover period in days, you will first need to calculate the inventory turnover ratio, for which you will need the above-mentioned cost price and the average cost of the company's inventory.

Steps

Part 1

Calculation of inventory turnover ratio

Become familiar with the concept of inventory turnover ratio. Inventory turnover tells us how many times a company uses and replenishes its inventory in a given period of time. A low turnover ratio suggests that the company's assets are being used inefficiently and are generating low profits. In this situation, the company holds too much inventory because it cannot use it quickly enough. A high turnover ratio may be an indication that a company is missing out on additional sales opportunities when a customer wants to purchase a product, but the company does not have enough inventory to produce and sell it.

Determine the cost of goods sold. Cost of goods sold represents the direct costs incurred in producing products or providing services. In the service sector, cost includes personnel costs, including wages, bonuses, and taxes. In retail or wholesale trade, cost includes the cost of purchasing goods from the manufacturer, as well as expenses incurred in connection with the acquisition of goods, their storage and display on store shelves.

• Cost of sales is reflected in the income statement. It is the value that is subtracted from revenue to give gross profit.
• In a trading company, the cost of sales can be simplified as follows: Cost of sales = Cost of inventory at the beginning of the period + Purchase of inventory during the period - Cost of inventory at the end of the period
• For example, consider a period of 12 months, at the beginning of which the company had inventories of 9,000,000 rubles, during the period goods were purchased for 20,000,000 rubles, and at the end of the period inventories amounted to 3,000,000 rubles.
• A simplified cost calculation would look like this: 9,000,000 + 20,000,000 - 3,000,000 = 26,000,000 (rubles) .
• The resulting value of 26,000,000 rubles will be indicated in the financial results report under the cost of sales line.

1. Determine the average cost of the company's inventory for the period. The average value of inventory for the reporting period is determined using the simple average calculation formula. The value of a company's inventory may vary significantly during an accounting period. That is why, to calculate financial indicators of turnover, it makes sense to use its average value. The average value avoids inaccuracies due to sudden changes in inventory levels.

   • Average inventory value for the period: (Inventory at the beginning of the period + Inventory at the end of the period) / 2.
   • For example, in the reporting year, the company had reserves in the amount of 9,000,000 rubles at the beginning of the year, and 3,000,000 rubles at the end of the year.
   • The average value of inventory for the year is as follows: (9,000,000 + 3,000,000 / 2 = 6,000,000 (rubles) .

2. Use the formula for calculating the inventory turnover ratio. Knowing the cost of sales and the average cost of inventory for the period, you can calculate the inventory turnover ratio. From the above examples, it is clear that for the 12-month period under review, the cost of sales was 26,000,000 rubles, and the average cost of inventory was 6,000,000 rubles. To calculate the inventory turnover ratio, it will be necessary to divide the cost by the average cost of inventory.

   • 26 000 000 / 6 000 000 = 4,33
   • That is, this company uses and replenishes its reserves 4.33 times per year.

Part 2

Calculation of inventory turnover period

1. Understand the meaning of inventory turnover period. Once you know the inventory turnover ratio, you can use it to calculate the inventory turnover period in days. The inventory turnover period tells you how many days it takes a company to sell all of its inventory. This indicator also indicates how many days the existing supplies will be sufficient. Companies use this indicator to assess their efficiency in terms of inventory use.

2. Use the formula for calculating the inventory turnover period. The inventory turnover period is determined by dividing the number of days in the analyzed period by the inventory turnover ratio for this period. In the above example, the turnover ratio was 4.33. Since in the example under consideration a period of 12 months was used, the total number of days in the period will be 365.

   • The inventory turnover period will be calculated as follows: 365 / 4.33 = 84.2 (days).
   • This suggests that it takes the company 84.2 days to fully sell its average inventory.

3. Apply an alternative calculation formula. If you have not previously calculated the inventory turnover ratio, you can directly use the values ​​of cost of sales and average inventory value to calculate the inventory turnover period. You will need to divide the average cost of inventory by the cost of sales for the period. Then the resulting number must be multiplied by the number of days in the analyzed period.

   • In the above examples, the average cost of inventory is 6,000,000 rubles, the cost of sales is 26,000,000 rubles, and the analyzed period is 365 days.
   • The calculation of the inventory turnover period will look like this: (6 000 000 / 26 000 000) * 365 = 84,2
   • The same value is obtained. It takes the company 84.2 days to fully sell its average inventory.

Inventory is often the largest component of a company's working capital. If inventory is not used up by business operations at a reasonable rate, the company will find itself in a situation where a significant portion of its cash is tied up in an asset that is difficult to liquidate quickly.

Accordingly, constantly monitoring the rate of inventory turnover is an important management function.

In all cases, these indicators should be monitored on a trend line to identify a gradual decline in the turnover rate. This ratio can also indicate to management that corrective action is needed to eliminate excess inventory.

Formula

The simplest calculation of inventory turnover is to divide the annual cost of sales by the ending inventory balance.

You can also use average volume in the denominator to avoid sudden changes in inventory levels that may occur at any period end date.

Cost price
goods sold /
Reserves

A variation on the previous formula is to divide the turnover by 365 days, which gives the turnover period in days. This option is more understandable for a layman. For example, the phrase “turnover in 43 days” is more understandable than “8.5 turns,” although they mean the same thing. Formula:

365 /
(Cost price
goods sold /
Inventories)

In the previous two formulas, the numerator uses the total cost of goods sold, which includes direct labor, materials, and overhead. However, only direct material costs are directly related to raw material inventory levels.

Consequently, a clearer relationship would be to compare the cost of direct costs of materials with raw material inventories, which gives an indicator of the turnover of raw material inventories.

This ratio can also be divided by 365 days to obtain the inventory turnover period. Formula:

Direct consumption
materials /
Raw materials reserves

The previous formula does not provide a clear relationship between direct materials and work-in-process or finished goods because these two inventory categories also include allocations of direct labor and overhead.

However, if these additional cost items are excluded from the estimate of work in process and finished goods, then there is a reasonable basis for comparing them to direct materials as a valid factor.

Example

A lawn mower company produces an annual inventory management report. The information collected by the CFO is shown in the table.

To calculate total inventory turnover, the CFO performs the following calculation:

CU 4,075,000 / CU 815,000 = 5 revolutions per year

To determine the turnover period, the CFO divides the number of turnovers by 365 days:

365 / 5 = 73 days

The CFO is also interested in the level of raw material turnover when compared to direct materials costs only, using this calculation:

Direct materials costs / Raw materials inventories =
CU 1,550,000 / CU 388,000 = 4 revolutions per year

The next logical step for the CFO is to compare these results with those of previous years, as well as with the results achieved by other companies in the industry.

The result, which is probably not good in any industry, is that comparing direct materials with raw material inventories resulted in only 4 turns per year.

This means that the average material is in stock for 90 days before it is used, which is too long if a reliable production (sales) planning system is used.

Precautionary measures

The turnover ratio can be distorted by changes in the basic costing methods used to allocate direct labor and overhead costs.

For example, if additional cost categories are added to the overhead pool, resource allocation will increase, resulting in a reduction in the reported inventory turnover level, even if the turnover level under the original calculation method has not changed.

The ratio may also become distorted if the cost allocation method is changed. For example, it may change from an allocation based on labor to an allocation based on machine hours, which may increase or decrease the total amount of overhead allocated to the cost of inventory.

A problem may also arise if inventory valuation is based on standard costs and the underlying standards are changed. In all three cases, the quantity of inventory available will remain the same, but the costing systems used will change the cost of inventory, which will affect the calculation of turnover.

Another problem is that the underlying turnover rate may not reveal the problem of excess inventory. Accordingly, the ratio can be structured so that there are separate calculations for raw materials, work in progress and finished goods (possibly grouped by location). This approach allows you to more accurately manage inventory issues.

The term inventory turnover is usually understood as a parameter characterizing the renewal of inventories of any product, goods, raw materials, materials during a certain billing period. If we talk about a warehouse complex, then in this case the turnover parameter determines the speed with which goods are produced and released from the warehouse. It is this parameter that determines the degree of efficiency with which two services interact - the purchasing service and the sales service.

If the turnover parameter is low, this clearly indicates an unsatisfactory performance of the company’s financial and commercial activities. It also serves as a signal that the company is experiencing excess cargo or that the company is experiencing poor sales.

And vice versa, if the turnover parameter is high, the faster the turnover of funds invested in goods occurs, and therefore, the faster the return of money in the form of revenue. In other words, for successful commercial activities of a company, it is necessary to maintain optimal inventory levels, and it is recommended to constantly monitor such a parameter as inventory turnover.

In order to continuously monitor inventory turnover, you need to know the following indicators:

• an indicator of the average inventory of goods for a specific period. Those. you need to know how much cargo, goods or raw materials are in the warehouse complex, for example, during the month;
• duration of the billing period. Any time period can be used in this capacity, for example, a year, a month, or a week for perishable goods;
• turnover indicator for the billing period. This parameter is calculated in warehouse prices.

Now a little more about these indicators. The average stock of goods is calculated as the sum at the beginning of the period and at its end, divided in half. If the average inventory of goods is calculated, then it is necessary to use the formula of the chronological average, and not the arithmetic average.

What is inventory turnover measured and how is it calculated?

In the case when we are talking about the inventory turnover parameter, as a rule, the following indicators are used:

• inventory turnover ratio. This parameter is calculated as the ratio of the cost of goods sold to the amount of inventory for the billing period on average;
• inventory turnover rate in days. It determines how many days the average warehouse inventory will be sold. The formula used to calculate the inventory turnover rate in days is as follows: About days = Average inventory of goods * number of days / Turnover of goods for this period;
• indicator of inventory turnover of goods in times. Shows how many times during the billing period the product was able to “turn around”, i.e. be realized.

The formula used to calculate the inventory turnover rate in times is as follows:

Volume = Cost of goods sold / Average inventory of goods for the period.

Inventory turnover does not have approved or generally accepted standard indicators. The most optimal figures should be determined as a result of analysis within one industry.

Warehouse turnover calculator

To achieve greater effect, it is recommended to conduct such an analysis within each specific enterprise. Additionally, keep in mind that companies with high profit margins tend to have lower inventory turnover rates than companies with lower profit margins.

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