{"id":9193,"date":"2021-02-01T10:18:07","date_gmt":"2021-02-01T15:18:07","guid":{"rendered":"https:\/\/www.certitrek.com\/nlpa\/?page_id=9193"},"modified":"2021-02-01T10:18:07","modified_gmt":"2021-02-01T15:18:07","slug":"inventory-turnover-ratio","status":"publish","type":"page","link":"https:\/\/www.certitrek.com\/nlpa\/news\/purchasing-articles\/inventory-turnover-ratio\/","title":{"rendered":"Inventory Turnover Ratio"},"content":{"rendered":"

Buyers: Know Your Inventory Turnover Ratio!<\/h3><\/div><\/div><\/div>

PurchTips edition #185<\/p>\n<\/div>

What Is Your Inventory Turnover Ratio?<\/h4><\/div><\/div><\/div>

The inventory turnover ratio indicates how well your organization is managing its purchased assets. Inventory turnover is the number of times that your inventory is replenished in a year. Low inventory turnover means that you are carrying too much inventory, thereby unnecessarily restricting your company’s access to cash that it could be using to invest in profit-generating activities, pay its bills, or even stay in business!<\/p>\n

So, how do you calculate your inventory turnover ratio? Well, there are actually a couple of ways. Inventory turnover can be for a single item or for overall inventory.<\/p>\n

Here’s the formula for a single item:<\/p>\n

ITR = US \/ [(BI + EI) \/ 2]<\/p>\n

Where,<\/p>\n

ITR = Inventory turnover ratio<\/p>\n

US = Units sold in last 12 months<\/p>\n

BI = Beginning inventory (the number of units in stock at the beginning of the 12-month period)<\/p>\n

EI = Ending inventory (the number of units in stock at the end of the 12-month period)<\/p>\n

When calculating the inventory turnover ratio for the overall inventory, you need some financial numbers. Here’s the formula for overall inventory:<\/p>\n

ITR = YCIS \/ [(BIV + EIV) \/ 2]<\/p>\n

Where,<\/p>\n

ITR = Inventory turnover ratio<\/p>\n

YCIS = Your cost of inventory sold in last 12 months<\/p>\n

BIV = Beginning inventory value (the total value of inventory at the beginning of the 12-month period)<\/p>\n

EIV = Ending inventory value (the total value of inventory at the end of the 12-month period)<\/p>\n<\/div><\/div><\/div><\/div><\/div>

Do You Want a More Rewarding Procurement Career?<\/h5><\/div>
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Are you a procurement leader whose team isn\u2019t achieving the results you know are possible? Maybe it\u2019s not enough cost savings. Or frustrating performance from the supply base. Or dissatisfied internal customers.<\/p>\n

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Download our whitepaper \u201cThe Procurement Leader\u2019s Guide To A More Successful Team.\u201d You\u2019ll learn the 7 steps for transforming your staff into a results-producing, world-class procurement team.<\/p>\n<\/div>

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Are You Getting The Most Out of Your NLPA Membership?<\/h5><\/div>
<\/span><\/div>

Members of the NLPA get more than just articles like this by email. As a member, you also get access to:<\/p>\n