Inventory turnover
factor.formula
Inventory turnover rate calculation formula:
Average inventory calculation formula:
The meanings of the parameters in the formula are as follows:
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The sum of the Cost of Goods Sold (COGS) for the last 12 months. Cost of goods sold refers to the direct costs incurred by a company when it sells goods or provides services, including raw material costs, labor costs, etc. Using the cost of goods sold for the last 12 months can more accurately reflect the company's sales over a period of time.
- :
The average inventory amount during the reporting period is used to represent the average inventory level held by the company during this period.
- :
The amount of inventory at the beginning of a reporting period (usually the beginning of the period). It reflects the inventory level at the end of the previous reporting period and is an important component of calculating average inventory.
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The amount of inventory at the end of a reporting period (usually the period end). It reflects the inventory level at the end of the current reporting period and is another important component of calculating average inventory.
factor.explanation
Inventory turnover is a key indicator to measure the efficiency of an enterprise's inventory management. A higher inventory turnover rate usually means that the enterprise is able to sell goods quickly and reduce inventory backlogs, thereby reducing storage costs and inventory depreciation risks, and accelerating capital recovery. This usually indicates that the company's products have strong market competitiveness and high operating efficiency. However, too high an inventory turnover rate may also mean that the company may miss sales opportunities due to insufficient inventory, or rely too much on just-in-time supply, thus facing higher supply chain risks. A low inventory turnover rate may imply that the company's sales are sluggish, inventory backlogs are serious, and there is even a risk of inventory impairment, which requires the company's management to deeply analyze the reasons and take corresponding improvement measures, such as promotions, optimizing inventory management, etc. When analyzing inventory turnover, it is necessary to combine industry characteristics and historical data of the company for comparison to better evaluate the company's inventory management level and operating conditions.