An inventory turnover calculator is an interactive tool used by companies who need to determine their inventory levels. The inventory turnover rate is calculated by taking into account the price per product sold (in many cases called cost of sales) over a period and then dividing this amount by the company s average inventory over that same period. This will provide the desired inventory turnover rate for any business, from small to large.
Other things to consider when using an inventory turnover calculator include the number of products being sold during any one month, the average price per item sold during a particular month and the average number of days it takes for products to be sold after they have been bought. These are just some of the factors that may be considered in calculating the value of a product or services offered. Once all of these values have been determined, the calculator can determine the average inventory turnover rates for a range of potential situations.
These include: Many businesses choose to use the inventory turnover calculator to compare their current sales situation with those of a year ago, in order to determine if there have been any changes to their business model that would result in a higher or lower turnover rate. Other uses for this type of calculator are to simply calculate the costs associated with purchasing new items and the costs associated with ordering them. In order to calculate these costs, you need to know the prices per item sold as well as the cost per day for the product or service to be purchased.
A final situation that can be determined by an inventory turnover calculator is the end inventory turnover ratio. This ratio compares the sales cost to the amount of product or service sold or purchased over a period of time. The higher the number, the higher the cost per sale or purchase. This can be a particularly useful measure if the business regularly sells or buys large quantities of a product or service, as it gives an idea of the highest end inventory costs, which can affect a company's profit margin. To determine the end inventory turnover ratio, divide the sales price per item by the amount spent per sale or purchase to arrive at an accurate number.
Other uses for an inventory turnover calculator are to calculate the effect of policy changes on sales or production levels, and to compare different inventory levels with a known reference point. To calculate the inventory turnover ratio, divide the inventory levels by the sales volume over one year to arrive at a figure for the inventory turnover rate. Also, to calculate this inventory turnover ratio, multiply the sales volume by the annual inventory level. Note that this inventory turnover calculator only deals with dollar amounts, not quantities, so be sure to track your inventory levels against a known benchmark.
One aspect of asset management that often gets lost in the shuffle of the daily operations is the relationship between inventory levels and profit and loss. An inventory turnover ratio formula can be used to calculate the effect of inventory levels on cogs and cash on hand. This is important because cash cogs are used to pay for inventory costs such as shrinkage, storage needs, and so forth, while inventory levels represent the number of items that can be held by warehouse operations. Therefore, the cogs' ratio reflects the cost per item, and the cash ratio reflects the profit made on the goods sold. By monitoring the ratios, a manager can ensure that a sufficient number of storage and support cogs are maintained to meet the inventory levels needed to meet projected sales, while ensuring that enough cogs are available to operate at maximum capacity to meet forecasted demand.