How to Calculate Inventory Turns
For anyone in business management, inventory turns may seem like an obvious concept. However, for those who are new to the business world, inventory turns is enough to make your head spin.

This is because inventory turns is a complicated concept. Essentially, inventory turns, which are also called stock turns or stock turnovers, involves the turning over (or the buying and selling) of your inventory. Inventory turns help you determine which stock is worth keeping and re-stocking and which is slowing your business down. It is vital for a successful business as it lets you keep track of your stock compared to your sales.

There is a specific formula for inventory turns which is as follows:

Inventory Turns= Cost of Goods Sold (over a given period)
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Average Inventory (for that period)
In general, the more times inventory is turned over, the better for your business. This is because a lower inventory turn rate means that you are paying more holding costs.

For example, if you sold 100,000 items of goods over a 12 month period and had 10,000 in inventory, then your turnover rate would be 10 (100,000 divided by 10,000). This is an extremely high (and good) turnover rate.

Using the Inventory Turn Formula in Real Life Situations
Here’s an example. Let’s say you own a company that buys and sells books. If you have bought 100,000 units of books and discover that the turnover rate is only once a year, then you will have to wait a full year to make back that money. If you only invested a smaller amount, say 20,000 in certain books, then you could use the other money to invest in another area that may have a higher turnover rate.
By knowing the inventory turn rate, you can help grow your business and ship that stock out before it begins to collect dust.

Inventory Report for your Business
It’s important to keep track of your inventory turn to know if you are losing money on holding costs with a low income turnover rate. In general, your turn rate depends on your competitors. For many companies, a turn rate of 5 or 6 is good. However, if your competition is turning over 10 times a year, then you should be able to turn over that amount as well. In this case, you are losing out.

The Main Definition of Inventory Turn
The main point when it comes to inventory turn is this: you want as little money as possible in inventory. As long as the inventory is being sold fast and thus has a high turn rate, then it is okay to have a lot of inventory. However, the more inventory you have, the more you have to sell to make a profit. Furthermore, the more inventory you have, the more holding costs you will have. Finally, the more money you have tied up in inventory, the less money you have to invest in other products that may have sold much faster.