Inventory Turnover

Do you have a feeling you’re not selling as much as you used to? Are you concerned about your turnover?

The inventory turnover calculation lets you know how quickly product is moving at your business. The metric provided (# of days) makes it easy to make comparisons within your business and with others in the industry.

At GEPC, we can help you understand the role that inventory turnover has in your business. It’s time to take charge of your finances.

What is it?

The inventory turnover formula indicates how many times a business has sold and replaced inventory within a given time period. By dividing a specified number of days by the value produced by the formula, you can determine how long it takes for the business to sell inventory they have on hand during a given time frame. 

It’s helpful for gaining an understanding of how many goods should be produced and stored in inventory within a given time frame, and can also highlight issues with consumer demand. 

how will it impact your business?

A high inventory turnover rate typically means that inventory is moving quickly and sales are strong, though it can also indicate that inventory levels are insufficient. Though running out of stock doesn’t seem like the worst problem to have, it has its own set of related issues: if consumers can’t reliably obtain your brand of product, they may start turning to a competitor that is more consistent.

A low inventory turnover rate can indicate that inventory levels are excessive or that products are not selling very well. There is also the matter of opportunity cost, though some businesses are affected by this more than others. In the retail business, for example, valuable retail storage space being taken up by undesirable products is not ideal since it limits the amount of new and on-trend products they can bring in. 

ready to take action?

If inventory turnover is low it may mean that too many goods are being produced, or that more of an emphasis needs to be placed on marketing the products. If inventory turnover is high due to insufficient stock, production efforts may need to be increased. Inventory levels should always be monitored to make sure they are neither too high nor too low.

want more information?

Schedule a free consultation at gregevans.ca or (705) 880-2224 to learn more about what we have to offer. It all starts with a conversation.