![]() Inventory Turnover ratio = sales/average InventoryĪs a side note, the use of average inventory in this formula is as a replacement for the very ending inventory fluctuates on throughout the year. ![]() The following is the formula of the ratio of the velocity of inventory or Inventory Turnover Ratio. ![]() Inventory Turnover ratio is calculated by dividing the cost of goods sold (HPP) for a given period by the average inventory for the period. That is why the Department of purchase should be aligned with the Sales Department. The sale must comply with the purchase of the goods/supplies in order to build-up can spin effectively. If not, then it would have incurred the costs of storage inventory and handling costs of other inventories. If the number of items bought many large amount of build-up causing, then the company should seek to sell them in large numbers as well to improve the rotation of its preparation ( Inventory Turnover). There are two main components in this Inventory Turnover Ratio, the first was the purchase of goods ( stock purchasing) to inventory and the second is the sale ( sales). This ratio is a good indicator to assess the quality of the inventory and purchasing practices that are effective in inventory management ( Inventory Management). In other words, Inventory Turnover Ratio measures how many times a company sells a total of average inventory during the year in question. ![]() Inventory Turnover ratio measures the average inventory "rotated" or "sold" for a period. An Inventory Turnover Ratio is the kind of efficiency ratio that shows how effective inventory maintained by comparing the cost of goods sold (HPP) and the average inventory for a given period. ![]()
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