Ecommerce Fulfilment Services

Inventory Turnover

inventory turnover

Inventory turnover is a measure used by businesses to evaluate how effectively they manage and sell their stock. It shows how often a company’s inventory is sold and replaced over a specific period, typically a year. This significant metric helps businesses understand the balance between having too much and too little stock on hand.

Calculating Inventory Turnover

Inventory turnover is calculated using the following formula:

Inventory Turnover = Cost of Goods Sold (COGS)​ / Average Inventory

Cost of Goods Sold (COGS): This is the direct cost of the production of the goods sold by a company. This includes the cost of materials and labour used to create the product but doesn’t include indirect expenses, like marketing and distribution costs.

Average Inventory: This is typically the average of the inventory levels at the beginning and end of the period under review, though it can also be calculated more frequently depending on the company’s reporting practices.

Example

If a company’s COGS for the year is £500,000 and their average inventory is £50,000, the inventory turnover would be:

Inventory Turnover= 500,000 / 50,000= 10

More Fulfilment Terms

Reverse logistics refers to the process of managing the return of goods from the point of consumption back to the point of origin or proper disposal. It encompasses activities such as product returns, recalls, repairs, refurbishment, recycling, and disposal.
Demand forecasting is predicting future customer demand for products or services.

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