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Quick Definition

Determines the ability of a company to sell its inventory by estimating the number of times its inventory was sold.

There's More to Financial Analysis Than You Think...

The Financial Analysis Success Kit can help!

Why you should take a look at the Financial Analysis Success Kit:

We've combined all our highly popular financial analysis tools into one mega-financial-analysis-kit that will save you hundreds of dollars if purchased separately. The kit contains 9 files packed with the most important financial ratio analysis tools you can find to help rocket your way to mastering financial analysis. The kit includes:

  1. The eBook "Learn Ratio Analysis In Minutes"

  2. The Learn Financial Ratio Analysis Excel Spreadsheet (2 versions!)

  3. A BONUS eBook..."Key Financial Statement Terms"

  4. Another HUGE BONUS...Five-Part Financial Ratio Cheat Sheet Series

The result? You get all these professionally created tools for a great low price.

Learn more on our product page:

Click the button to learn more about the Financial Analysis Success Kit

 

financial ratio analysis success kit

Click the button to learn more about the Financial Analysis Success Kit

Inventory Turnover Formula

Explanation of Inventory Turnover

Also called the Inventory Turns ratio, the Inventory Turnover shows how many time a company can sell, or turnover, its inventory. From this, you can gauge how well the company manages to sell its Inventories. Another way of saying this is how efficiently the company converts inventory into sales.

Importance of Inventory Turnover

If the company can quickly sell its Inventories, then its Cost of Goods Sold is likely lower, resulting in a higher Inventory Turnover. Conversely, if the company cannot sell its inventory very well, then the Inventory Turnover will be low.

You will have to watch this figure closely – if the Inventory Turnover Ratio climbs too high, then the company may be keeping too little inventory. This could cause lost profits due to customer orders that had to wait until inventory arrived.