#HIGH INVENTORY TURNOVER RATIO MEANING HOW TO#

Stock to sale ratio = Average inventory / Net sales Make sure that you use the net sales value for this calculation by subtracting your return sales data from your gross sales over the given time period. This metric is an important figure because, in order to avoid excess inventory, you have to make sure that your average inventory level is as close as it gets to your net sales. Stock to sale ratio is the available stock to stocks sold.This value may have a little twist in the calculation as you need carefully include your year around purchases.Įnding inventory = beginning inventory + purchases - COGS As you can see ending inventory is used to determine average inventory.No matter how simple it looks, calculating the average inventory periodically is going to change the way you run your retail business.Īverage inventory = (Beginning inventory - Ending inventory) / 2 Average inventory is also the main determinant of the inventory turnover ratio and this value also used in some of the calculations you’ll see below.Many retail analytics formulas depend on this value and this is one of the core values to determine whether your business is profitable.Ĭost of goods sold = (Cost of beginning inventory – Previous inventory) – Cost of ending inventory Cost of goods sold a.k.a COGS is one of the most important KPIs that you should keep track of.Here are some of the most important inventory management metrics other than the inventory turnover ratio.

These calculations help the businesses to analyze their stock in some alternative ways so you can deepen your predictions.

There are some other metrics to use to analyze how well you orchestrate the inventory management tactics.

#HIGH INVENTORY TURNOVER RATIO MEANING HOW TO#

However, to achieve these all, you need to know the inventory management metrics and how to calculate them. Related: 15 Key Metrics (KPIs) to Measure Retail Store Performance Why is inventory turnover so important for retail?īy assessing your inventory turnover within a given period -monthly, quarterly, bi-annually, or annually- you may determine your pain points, work on alternative methods to clear the aisle, offer better deals for your customers, and win in the end-game. However, it's safe to say the final number is varied from industry to industry. The ratio is calculated with a few determinants, and generally, the higher the ratio is, the better the business performs. This ratio is used to determine how your business performs overall and how efficient your inventory management works. Inventory Turnover Ratio = Cost of Goods Solds / Average Inventory The inventory turnover, or sometimes referred to as “inventory turns,” “stock turn,” or “stock turnover,” is basically how many times a product is sold and replaced in a given time. Inventory Turnover Ratio Formula - Image: EDUCBA Ready to purchase? Complete your purchase in just minutes! What is inventory turnover ratio? Let's get to the basic definition of inventory turnover and then dive deeply into the tactics and methods to optimize the ratio! Dor - People Counting Dashboardĭid you know that a 1% increase in your store’s conversion rate can mean a 10% increase in revenue?Ĭlick here to discover how Dor can help you understand your foot traffic data and make more profitable business decisions. It's a simple but essential metric that needs to be monitored according to your business needs. It will help you analyze what you can sell, plan your purchasing amount and frequency while giving you a better analysis of how efficient your sales are. To do the math, it's crucial to understand what inventory turnover ratio is. That's why retailers need to have another metric in their hands to understand predictive sales and how much inventory they need. However, inventory management can be a hassle that negatively impacts numbers. Every retailer is curious about what they sell or how much money they make in a given time.

High inventory turnover ratio meaning