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Inventory Turnover Ratio – Meaning, Formula, Calculation & Interpretations [Video]

Inventory Turnover Ratio – Meaning, Formula, Calculation & Interpretations

This tutorial provides a comprehensive overview of the Inventory Turnover ratio, including its meaning, formula, calculations, and interpretation. Using a practical colgate case study example, we will learn how to calculate this inventory turnover ratio in excel.

You can download the Colgate Inventory Turnover Ratio template from this link – https://www.wallstreetmojo.com/ratio-analysis-template/

What is Inventory Turnover Ratio?
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The Inventory Turnover Ratio examines how quickly a company replaces its current inventory and converts it into sales. A higher ratio means the company’s product is in high demand and sells quickly, resulting in fewer inventory management costs and more profits.

Formula
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Inventory Turnover Ratio Formula = Cost of Goods Sold / Average Inventory

Interpretation of Inventory Turnover Ratio
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– High Inventory Turnover Ratio – This indicates that the company has done a good job of managing its inventory, with lower holding costs and fewer risks of obsolescence.
– Low Inventory Turnover Ratio – This implies that the company’s products aren’t frequently sold in the market, and its inventory becomes slow-moving, resulting in higher inventory costs and lower earnings.
For more details, you can refer to our article – https://www.wallstreetmojo.com/inventory-turnover-ratio-formula/

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