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Sep 23 in Business Tools and Metrics
Metric of the Day!
Inventory turnover rate
Inventory turnover rate measures how quickly a company sells and replaces its inventory over a specific period (typically a year).
The formula is:
Inventory Turnover Rate = Cost of Goods Sold / Average Inventory
•Cost of Goods Sold: Total cost of products sold during the year
•Average Inventory: Average value of inventory during the same period
Interpretation
•High inventory turnover rate: Favorable, indicating quick and efficient sales
•Low inventory turnover rate: May indicate trouble selling products, leading to excess inventory and higher costs
Important Note
•Ideal inventory turnover rate varies by industry and company
•Influenced by factors like seasonality, market demand, and supply chain management
•Compare to industry benchmarks and historical data for a better understanding of performance.
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Metric of the Day!
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