### Inventory Turnover Ratio: Analysis, Formula & Calculator

Let’s say a company has a COGS of \$100 million and an average inventory of \$125 million. Continue reading to learn more about inventory turnover and other critical accounting ratios, see how to find inventory turnover and recognize the beneficial insights these measures provide your business. And too little inventory can turn off customers since there’s no product to fulfill orders, stunting sales and jeopardizing the business life cycle.

• In general, the higher the stock turnover rate, the higher the chances of achieving your goals.
• A high inventory turnover means good cash flow, as demand for your company’s products is high.
• Therefore, it is justifiable to calculate the inventory turnover ratio with average inventory to visualize a complete picture of the overall inventory trend.
• Inventory turnover ratio tells ecommerce business owners how well their stock is flowing through their online business.

Therefore, businesses can estimate new inventory requirements from that metric. You can also forward orders to your suppliers and fulfillment partners, monitor sales performance, and notify customers when a sold-out item is back in stock to keep inventory moving. For example, using a platform like Wix eCommerce, you can automatically sync inventory across your various sales channels, ensuring that you don’t oversell or lose visibility over your products.

## Previous PostHow to start a food business from home in 2022

But instead of comparing it to the cost of goods sold, it compares it to the selling price of goods sold. This means that instead of just telling you how fast inventory is moving, it shows how hard your capital is working to generate sales. A low inventory turnover may reflect issues in your sales strategy or low market demand for your products.

### What does an asset turnover of 1.5 mean?

Hence, the interpretation of the asset turnover ratio means the higher the ratio, the more efficient a company is at generating revenue from its assets. That is, an interpretation of an asset turnover ratio of 1.5 would mean that each dollar of the company's assets generates \$1.5 in sales.

Inventory turnover represents how many times your average inventory has been sold or “turned over” within a specified time period. Usual accounting practice is to calculate Inventory Turnover Ratios for Ecommerce: Everything You Need To Know turnover on an annual basis. However, you can also calculate turnover more regularly (for example, monthly or quarterly) to identify seasonal trends in your business.

## How to improve inventory turnover ratio

Therefore, with every process well-controlled under the system, you can easily record all sales activities and generate reports in real time. This cutting-edge software makes optimizing your drivers’ delivery routes fast and easy. The key is to make sure that your whole inventory covers customer demands without lingering on shelves (upping storage costs). More specifically, it’s the number of days that go by from the day your company purchases the inventory until that same inventory is sold to your customers. In this article, I’m going to start by explaining what the financial ratio is and why it’s important.

Sadly, several sellers struggle to improve their ratio, making scaling at large more challenging. Consider training to address the way purchasing decisions are now made, or stress the need for sales leaders to come to the table with realistic, not overly optimistic, projections. When a manufacturer dictates the minimum, or maximum, amount you may sell an item for, that limits your ability to use price as an inventory lever. A voracious reader, an avid researcher, a logophile, and a tech geek he loves to read about the latest technologies that are shaping the world. He often articulates the very nuances of the tech world in his blogs. In his free time, he loves to watch movies and analyze stock markets around the world.