![]() ![]() A ratio of 4 or above is usually considered excellent. A ratio of 2 or above is usually considered good. In general, though, a higher inventory turnover ratio is better than a lower one. That’s because people need to eat more often than buy a new car. For example, companies selling perishable goods like food will have higher inventory turnover ratios than those selling durable goods like cars. There’s no magic number for a good inventory turnover ratio. ![]() What Does a Good Inventory Turnover Ratio Look Like? That would give you an inventory turnover ratio of 2 ($100,000 / $50,000). Inventory Turnover = Cost of Goods Sold / Average Inventoryįor example, let’s say that your company’s cost of goods sold for the year was $100,000 and its average inventory for that year was $50,000. Once you have them, you can plug them into this formula: You’ll need to look at your company’s financial statements to get these numbers. It’s a good idea to look at other measures as well, such as gross margin and return on investment.īy following these tips, you can be sure that you’re calculating your inventory turnover rate accurately and getting the most out of this important metric.
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