Inventory Turnover
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In the Financial Manager, inventory turnover shows cost of sales in relation to average inventory. This ratio indicates the effectiveness of a company's inventory management.
The calculation for this ratio is
where:
Cost of Sales = the sum of all Cost of Sales account types
where:
Inventory Balance = the sum (dollar amount) of all Inventory account types
Beginning Inventory Balance (for the first available period) = the sum of all inventory beginning balance entries
Beginning Inventory Balance (for all other periods) = the inventory ending balance entry for the previous period
Ending Inventory Balance (for the current period) = the inventory balance for the current period as of the date specified in the Date field
Ending Inventory Balance (for all other periods) = the ending inventory balance for the period being reported
Example
If beginning inventory is $70,000 and ending inventory is $80,000, then average inventory is $75,000.
If cost of sales is $30,000 and average inventory is $75,000, then inventory turnover is 0.40.
The calculations for this example are
