How to Calculate Inventory Turnover?

A company’s inventory turnover ratio is a vital indicator of its operational efficiency. The average balance of inventory should be sold each year to keep up with demand and avoid excess costs from carrying too much product on hand, but if that number continues to grow then there may have been problems in terms of sales strength or customer service issues that need addressing before anything else can progress accordingly. The formula is: Inventory turnover = COGS / Average inventory balance for period

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