What is inventory turnover ratio?

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Any idea how I can calculate the inventory turnover ratio? Do you also know how I can actually interpret the results? What kind of benchmark should I be using? Past years, industry or major competitors?

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score 0 · Answer 1 · 2012-12-02T21:28:00+00:00

The inventory ratio shows the times that the stock is replaced with new stock purchased or in other words how many times the company recycles its inventory in a year. The ratio can be found as :

Inventory turnover=Cost of Sales/Average Inventory
Where average inventory is the (Opening Inventory+Closing Inventory)/2

You can also use the following to calculate the inventory turnover:

Inventory turnover= Sales/Closing Inventory