This efficiency ratio shows the cost of goods sold (COGS) divided by the average inventory amount for the period.Ĭompanies sometimes use an inventory turnover ratio, also called inventory or merchandise turns, when applying for loans to show the bank the stock value. Inventory turnover ratio measures how well a company manages its stock, which is the number of times the inventory sold over the year.

For more details on a periodic inventory control system, read “ Periodic Inventory System: Is It the Right Choice?” To learn more about a perpetual inventory control system, read the “ Definitive Guide to Perpetual Inventory.” For more information on inventory control, see the “ Essential Guide to Inventory Control.” What Is Inventory Turnover Ratio? For example, they could account for their goods using a periodic inventory system or on an ongoing basis, known as a perpetual inventory system. In accounting terms, inventory is the value associated with stock that accountants list on the balance sheet of financial statements.Ĭompanies control inventory using different methods, formulas and procedures in their accounting. Inventory includes raw materials, works in progress and finished goods. Inventory is the stock that a company holds and considers assets. It provides business professionals with terms, formulas, ideal ratios, examples and expert guidance to help master inventory turnover.

This guide on inventory turnover goes beyond simple inventory control processes.

Material turnover ratio formula