ArtsAutosBooksBusinessEducationEntertainmentFamilyFashionFoodGamesGenderHealthHolidaysHomeHubPagesPersonal FinancePetsPoliticsReligionSportsTechnologyTravel

Inventory Management: Simple Steps to Improve Inventory Turnover

Updated on June 9, 2013

Inventory turnover is a basic formula managers use to determine the number of times a company sells through its average inventory on hand.


Basics of Inventory Turnover

Inventory turnover represents exactly how often an organization sells out its entire inventory on hand for a given period. Businesses can compute this figure on a weekly, monthly, or annual basis. Most organizations commonly desire to improve their inventory turnover as this enhances unit sales and sales revenues. Different activities or operational changes may help a business increase its inventory turnover. Past inventory data or details and existing market conditions are amongst the top elements that affect a company’s merchandise inventory turnover. A company's control team is often able to assess each item that directly or indirectly affects merchandise sales as well as inventory turnover.

Here is a common accounting formula used to compute a company's inventory turnover:

Inventory Turnover =
Cost of Goods Sold / Average Inventory*
*Average Inventory =
Beginning Inventory + Ending Inventory / 2
Cost of Goods Sold
Beg. Inventory
End. Inventory
Average Inventory =
$45,000 + $55,000 / 2
= $50,000
Inventory Turnover =
$75,000 / $50,000
= 1.50
The company sells through its inventory one-and-a-half times during the current year.

Watch this video to learn about two formulas for calculating inventory turnover. One use net sales and the other uses inventory cost data.

Lead Time Management

Lessen the lead-time for receiving new inventory. Long lead times suggest an organization requires more days to place an inventory order and receive the merchandise at its place of business. A common method to shorten lead-time is to use an automated inventory ordering system.

Safety Stock Management

Reduce merchandise safety stock. Safety stock is excess inventory held to satisfy unforeseen consumer demand. Reduced lead-times or just-in-time inventory systems are able to assist an organization in diminishing safety stock held by the business.

Old & Obsolete Inventory

Sell off older or excess inventory at discount prices. Taking out these merchandise inventory items from current stock-on-hand can easily enhance inventory turnover and also enable for selling items with much higher demand.

Inventory Transaction Costs

Avoid additional transaction charges linked with merchandise stock replacements. For example, a company should attempt to expense freight charges right away if possible to avoid adding them to the general ledger inventory account. When possible, a company should avoid merchandise changeover costs, which can easily decrease merchandise inventory turnover.

Inventory Forecasting Notes

Produce accurate inventory forecasts. The use of historic sales reports along with a current assessment of inventory needs can reduce potential problems in ordering too much inventory based on false or inappropriate information

Notes & Reminders

Inventory accounting supplies ratios and equations for a range of merchandise ordering and management purposes. Calculating these measurements each month could aid an organization into precisely determining how well they handle existing inventory turnover.


    0 of 8192 characters used
    Post Comment

    • oz-vitez profile imageAUTHOR

      Oz Vitez 

      6 years ago from Parts Unknown

      I have always believed that cash is king, especially in business. Why haggle with other businesses in corporate inventory trade/barter when the company can simply lower retail prices to 10% above cost, at cost, 25% below cost, and lower if necessary to move obsolete goods?

      At some point, inventory will no longer qualify for a good trade/barter deal. If a great opportunity does arise, however, I think a company should always be thinking outside the box. But in some ways, the classic business practices can work best when executed well.

    • profile image


      6 years ago

      Thoughts on leveraging Corporate Trade as an alternative to discount liquidation?


    This website uses cookies

    As a user in the EEA, your approval is needed on a few things. To provide a better website experience, uses cookies (and other similar technologies) and may collect, process, and share personal data. Please choose which areas of our service you consent to our doing so.

    For more information on managing or withdrawing consents and how we handle data, visit our Privacy Policy at:

    Show Details
    HubPages Device IDThis is used to identify particular browsers or devices when the access the service, and is used for security reasons.
    LoginThis is necessary to sign in to the HubPages Service.
    Google RecaptchaThis is used to prevent bots and spam. (Privacy Policy)
    AkismetThis is used to detect comment spam. (Privacy Policy)
    HubPages Google AnalyticsThis is used to provide data on traffic to our website, all personally identifyable data is anonymized. (Privacy Policy)
    HubPages Traffic PixelThis is used to collect data on traffic to articles and other pages on our site. Unless you are signed in to a HubPages account, all personally identifiable information is anonymized.
    Amazon Web ServicesThis is a cloud services platform that we used to host our service. (Privacy Policy)
    CloudflareThis is a cloud CDN service that we use to efficiently deliver files required for our service to operate such as javascript, cascading style sheets, images, and videos. (Privacy Policy)
    Google Hosted LibrariesJavascript software libraries such as jQuery are loaded at endpoints on the or domains, for performance and efficiency reasons. (Privacy Policy)
    Google Custom SearchThis is feature allows you to search the site. (Privacy Policy)
    Google MapsSome articles have Google Maps embedded in them. (Privacy Policy)
    Google ChartsThis is used to display charts and graphs on articles and the author center. (Privacy Policy)
    Google AdSense Host APIThis service allows you to sign up for or associate a Google AdSense account with HubPages, so that you can earn money from ads on your articles. No data is shared unless you engage with this feature. (Privacy Policy)
    Google YouTubeSome articles have YouTube videos embedded in them. (Privacy Policy)
    VimeoSome articles have Vimeo videos embedded in them. (Privacy Policy)
    PaypalThis is used for a registered author who enrolls in the HubPages Earnings program and requests to be paid via PayPal. No data is shared with Paypal unless you engage with this feature. (Privacy Policy)
    Facebook LoginYou can use this to streamline signing up for, or signing in to your Hubpages account. No data is shared with Facebook unless you engage with this feature. (Privacy Policy)
    MavenThis supports the Maven widget and search functionality. (Privacy Policy)
    Google AdSenseThis is an ad network. (Privacy Policy)
    Google DoubleClickGoogle provides ad serving technology and runs an ad network. (Privacy Policy)
    Index ExchangeThis is an ad network. (Privacy Policy)
    SovrnThis is an ad network. (Privacy Policy)
    Facebook AdsThis is an ad network. (Privacy Policy)
    Amazon Unified Ad MarketplaceThis is an ad network. (Privacy Policy)
    AppNexusThis is an ad network. (Privacy Policy)
    OpenxThis is an ad network. (Privacy Policy)
    Rubicon ProjectThis is an ad network. (Privacy Policy)
    TripleLiftThis is an ad network. (Privacy Policy)
    Say MediaWe partner with Say Media to deliver ad campaigns on our sites. (Privacy Policy)
    Remarketing PixelsWe may use remarketing pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to advertise the HubPages Service to people that have visited our sites.
    Conversion Tracking PixelsWe may use conversion tracking pixels from advertising networks such as Google AdWords, Bing Ads, and Facebook in order to identify when an advertisement has successfully resulted in the desired action, such as signing up for the HubPages Service or publishing an article on the HubPages Service.
    Author Google AnalyticsThis is used to provide traffic data and reports to the authors of articles on the HubPages Service. (Privacy Policy)
    ComscoreComScore is a media measurement and analytics company providing marketing data and analytics to enterprises, media and advertising agencies, and publishers. Non-consent will result in ComScore only processing obfuscated personal data. (Privacy Policy)
    Amazon Tracking PixelSome articles display amazon products as part of the Amazon Affiliate program, this pixel provides traffic statistics for those products (Privacy Policy)