Annual Inventory Turns

A standard feature on the Inventory Sales Analysis Report is the Annual Turns calculation. It represents how many times an item turns over its stock in a year’s sequence.

The formula usually used is: cost of goods sold divided by  inventory value.  In other words, if you have sold $50000 worth of your entire goods and its average cost value is $25000, then you have turned it over twice. If this represents only the first 4 months of the year, then it is interpolated to mean that for the entire year, it will be three times that or an annual turn of 6.  A company that has a higher annual inventory turnover than a competing company is naturally valued higher.

Some businesses tend to overlook this piece of data and focus more narrowly at the quantity sold year-to-date on an item or product line compared to the previous year. There may also be quarter to quarter comparisons in order to determine which items are fast or slow movers that are not seasonally affected.

Annual turns help a business determine how often they need to make sure the product is purchased or made. It is important that there be someone in your organization that takes the time to examine the analytic reports and use them as a tool to benefit the company.

In any event, make sure your accounting system contains annual turns on the standard sales analysis report.

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