How to Calculate Inventory Turnover Ratio Monthly
Inventory refers to the goods that a company purchases in order to sell to the retailer or consumer and earn a profit. Inventory turnover ratio, on the other hand, refers to the number of times the company sells its inventory during a certain period.
Financial analysts typically determine the inventory turnover ratio for a company to evaluate how efficiently the latter manages its inventory. Company that deals in perishable goods typically has a high inventory turnover ratio, whereas a company that does in durable goods normally has a low value of inventory turnover ratio.
The inventory turnover ratio can be calculated on yearly, quarterly and monthly basis. You just need to have an access to the company’s balance sheet and income statement.
Things Required:
– Balance sheet
– Income statement
– Calculator
– Pen and paper/Computer
Instructions
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1
In order to calculate inventory turnover ratio monthly, you will need to determine the average inventory for that particular month. In order to do that, take a look at the previous month’s balance sheet of the company and note down the inventory mentioned on it in the assets section. Then look at the current balance sheet and note down the new figure of inventory. Add the two figures of inventory and divide them by 2 in order to get average inventory. You will need to use a calculator for calculating the average. If you are working on the computer, use the built-in calculator.
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2
Next, you need to determine the costs of goods sold during the month. To get this figure, you will need to look at the company’s income statement for the given month. Most of the companies publish their income statements on their website. If you do not find it there, request the company for it. Note this value down.
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3
To calculate the inventory turnover ratio for the month, put it in the formula “cost of goods sold/average inventory”.
