Sales turnover, often called inventory turnover, refers to how often the company sells all of its inventory. The more sales the company does, the higher the sales turnover rate. You can measure sales turnover in different time-frames, such as annually or monthly. The higher the turnover rate, the more efficiently the company turns money spent on purchasing goods into profits. Each day that the inventory sits on the shelves or in the warehouse is a day that the company cannot use the money paid for those goods to make a profit elsewhere.
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Step 1
Calculate the average inventory in units by adding the daily inventory for each day of the period and dividing by the number of days in the period. Or, if daily inventory amounts are unavailable, use the data available. For example, if you are calculating the annual sales turnover and you have monthly inventory amounts, add the monthly inventory amounts and divide by 12 to find the average inventory.
Step 2
Check the company records to find the value of the company's sales, as measured in units, during the specified time period. Using units rather than dollars is preferable, as dollars can fluctuate during the year.
Related Reading: How to Calculate Turnover Frequency
Step 3
Divide the company's total sales by the average inventory value to find the sales turnover rate. For example, if the average inventory equals 500,000 units, and the company's sales for the year equals five million units, divide five million units per year by 500,000 units to find that the company's inventory turns over 10 times per year.
Sales turnover, often called inventory turnover, refers to how often the company sells all of its inventory. The more sales the company does, the higher the sales turnover rate. You can measure sales turnover in different time-frames, such as annually or monthly. The higher the turnover rate, the more efficiently the company turns money spent on purchasing goods into profits. Each day that the inventory sits on the shelves or in the warehouse is a day that the company cannot use the money paid for those goods to make a profit elsewhere.
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Step 1
Calculate the average inventory in units by adding the daily inventory for each day of the period and dividing by the number of days in the period. Or, if daily inventory amounts are unavailable, use the data available. For example, if you are calculating the annual sales turnover and you have monthly inventory amounts, add the monthly inventory amounts and divide by 12 to find the average inventory.
Step 2
Check the company records to find the value of the company's sales, as measured in units, during the specified time period. Using units rather than dollars is preferable, as dollars can fluctuate during the year.
Related Reading: How to Calculate Turnover Frequency
Step 3
Divide the company's total sales by the average inventory value to find the sales turnover rate. For example, if the average inventory equals 500,000 units, and the company's sales for the year equals five million units, divide five million units per year by 500,000 units to find that the company's inventory turns over 10 times per year.
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