![]() ![]() What is a Good Inventory Turnover Ratio? (High or Low) Balance Sheet → A “snapshot” at a specific point in time of a company’s assets, liabilities and equity.Income Statement → The financial performance, such as revenue, costs, and profitability, of a company across two periods.In effect, a mismatch is created between the numerator and denominator in terms of the time period covered. While COGS is pulled from the income statement, the inventory balance comes from the balance sheet. Inventory Turnover Ratio = Cost of Goods Sold (COGS) ÷ Average Inventory The formula used to calculate a company’s inventory turnover ratio is as follows. Step 2 → Divide the numerator, the cost of goods sold (COGS) in the corresponding period, by the average inventory as calculated above.Step 1 → Calculate the average inventory by adding the prior period inventory balance and ending inventory and then dividing by two.The steps for calculating the inventory turnover ratio are the following: Thus, the metric determines how long it takes for a company to sell its entire inventory (and need to place more orders). The ratio is calculated by dividing the cost of goods sold (COGS) by the average inventory balance for the matching period. In other words, the ratio measures how well a company can convert its inventory purchases into revenue. ![]() ![]() The inventory turnover ratio portrays the efficiency at which the inventory of a company is turned into finished goods and sold to customers. How to Calculate Inventory Turnover Ratio (Step-by-Step) The Inventory Turnover Ratio measures the number of times that a company replaced its inventory balance across a specific time period. ![]()
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |