The inventory turnover ratio calculator works out the number of times the inventory of the business was converted into sales or used during an accounting period.
The value of the inventory turnover ratio will depend on the industry the business operates in. A low inventory turnover ratio can indicate inefficiency in managing inventory leading to obsolete inventory, write offs and increased stock holding costs to the business.
However, if the inventory ratio is high, it may indicate that inventory levels are being maintained at too low a level in comparison to the sales leading to stock shortages and lost revenue.
The inventory turnover calculation is carried out using the inventory turnover formula by dividing the cost of goods sold by the average inventory for the period.
Cost of goods sold is found on the income statement. The cost of goods sold is used instead of sales as the inventory value used in the turnover formula is stated at cost.
Inventory is found on the balance sheet of the business. The average of the opening and closing inventory levels is used to avoid distorting the result.
Using the Inventory Turnover Ratio Calculator
The Excel inventory turnover ratio calculator, available for download below, is used to compute inventory turnover by entering details relating to the cost of goods sold and the opening and closing inventory levels. The calculator is used as follows:
- The cost of goods sold is entered. Cost of goods sold is found on the income statement of the business. It is sometimes referred to as cost of sales.
- The opening and closing inventory levels are entered. The opening and closing inventory levels are found on the balance sheet of the business. The inventory turnover ratio calculator calculates the average value of inventory during the accounting period, and the inventory turnover ratio.
There is no correct value for the inventory turnover ratio as it depends on the industry in which the business operates. It is useful to compare the calculated figure with other businesses in your industry using figures available from published financial statements.
Inventory Turnover Ratio Calculator Download
The inventory turnover ratio spreadsheet is available for download in Excel format by following the link below.
Users use this inventory turnover calculator at their own risk. We make no warranty or representation as to its accuracy and we are covered by the terms of our legal disclaimer, which you are deemed to have read. This is an example of an accounting tool that you might use to perform the inventory turnover ratio calculation. It is purely illustrative. This is not intended to reflect general standards or targets for any particular business, company or sector. If you do spot a mistake in this cost of turnover calculator, please let us know and we will try to fix it.
About the Author
Chartered accountant Michael Brown is the founder and CEO of Double Entry Bookkeeping. He has worked as an accountant and consultant for more than 25 years in all types of industries. He has been the CFO or controller of both small and medium sized companies and has run small businesses of his own. He has been a manager and an auditor with Deloitte, a big 4 accountancy firm, and holds a BSc from Loughborough University.