home Folk remedies Inventory turnover ratio formula. Calculation of inventory turnover

Inventory turnover ratio formula. Calculation of inventory turnover

The inventory turnover ratio indicates the speed at which a company sells products. For the calculation, you will need data on revenue and average inventory. It is worth analyzing the indicator in dynamics.

The faster the company manages to convert raw materials into money, the more profitable the production. To analyze the turnover rate, the inventory turnover ratio is used. The English-language analogue of the indicator is Inventory Turnover, Times. It is calculated based on data on the cost of goods sold and average inventory. As a rule, data is taken for a year, but you can also find the coefficient value for a quarter or month.

Calculation formula

Find the turnover ratio (K OZ) using the formula:

ΔЗ - average cost of inventories.

Page 2110 - the value of line 2110 from Form 2 (“Revenue”);
Page 1210np - the value of line 1210 from Form 1 at the beginning of the period (“Inventories”);
Page 1210kp - the value of line 1210 from form 1 at the end of the period;
Page 1220np - the value of line 1220 from Form 1 at the beginning of the period (“Value added tax on acquired assets”);
Page 1220kp - the value of line 1220 from Form 1 at the end of the reporting period.

It is convenient to use the balance sheet to calculate the indicator if you are interested in the value of the coefficient for the year. In some companies, this accounting document may be prepared more often: for example, once a quarter.

Example of calculating CP

For example, let’s calculate the CP in the dynamics of the year (download the table).

The value of the coefficient changed throughout the year. The minimum was in April: 0.4. This means that material assets managed to turn around only 40%. The maximum is observed in November: inventories are turned over more than 3 times.

Standard value

The inventory turnover ratio is an important indicator for the financial analysis of an enterprise, assessment of its product and pricing policies, and management of the raw material base. The higher it is, the more efficient production is, the less stagnation, the higher the profitability of manufacturing products. There cannot be a recommended range of values for CP: this indicator should be analyzed over time. Its meaning will depend generally on the industry and the specific enterprise. It will also be useful to compare the obtained value with the coefficients of direct competitors: this is necessary to determine the tendency to lag.

Thus, an increase in the ratio is a good sign; it indicates a more efficient use of inventory in the enterprise. However, a greatly inflated figure indicates a lack of resources for a normal technological process, and this is a minus for production. Growth should be uniform.

Note! In the high season the coefficient will increase, and in the low season it will fall. This is normal. To analyze the availability of reserves based on seasonality, you should calculate the OZ more often.

Of course, the formation of inventory and sales can be influenced by external factors, such as:

supplier bankruptcy;
decrease in purchasing activity;
entering the market of a more competitive product;
changes in legislation;
foreign policy;
technological defects and withdrawal of some products from sale.

External factors also have an indirect effect on the coefficient. And this must be taken into account when analyzing all financial and economic activities, and not just a single indicator.

The collection is intended for specialists of trading companies who want to effectively manage the company's areas. That is, to create profitable product categories that allow the company to develop, and not exist!

Inventory turnover can be displayed both in days and in turnover for a certain period. A person who manages inventory should be interested in how quickly he will sell the goods that he delivered to the company’s warehouse. If we talk about turnover in days, then this means how many days it will take me to sell the goods during the year. If we talk about turnover in times, then this means how many times a year the warehouse that I brought will be sold out. It is usually believed that the faster the warehouse turns over, the better for the company. But more on that a little later. Now let's look at the inventory turnover formulas:

1. Formula for inventory turnover in times per year - monetary value

k turnover= (sales amount for 1 month - gross profit for 1 month) / (cost of inventory at the beginning of 1 month + cost of warehouse at the end of 1 month) / 2 * 12 months. =

This formula uses sales and calculation of the average cost of a warehouse for 1 month. This formula is often useful when the turnover for a certain group of goods per month is planned and analyzed. Typically, this indicator is used to analyze the fulfillment of set targets, one of which is inventory turnover. For ease of perception of the calculated result, turnover is reduced to annual expression by multiplying the result by 12 months. Usually, it is easier to perceive the result of turnover in annual terms than in monthly terms. Annualized inventory turnover tells us how many times a year a company will turn inventory if sales and inventory are at the same level as in the month being analyzed. If you wish not to annualize turnover, then you simply need to remove the " 12 months" from the formula.

2. Formula for inventory turnover in times per year - natural expression

k turnover= quantity of goods sold for 1 month in pieces / (availability of goods at the beginning of 1 month in pieces + availability of goods at the end of 1 month in pieces) / 2 * 12 months. = number of items sold in 1 month / average availability of goods in the company’s warehouse for 1 month * 12 months.

As you can see, this formula uses natural values, namely pieces of a certain product, to calculate turnover. Other units of measurement may also be used. As in the previous formula, the result is also expressed in annual terms. The peculiarity of this formula is that this formula cannot be applied to the calculation of turnover for a group of goods. Why? It’s simple, one group of goods can include goods of different prices. For example, the product group “tools”. It can contain both a set of tools and individual screwdrivers. And if you calculate the turnover of a group of goods in which a large number of screwdrivers and not so many tool sets are sold, then the turnover indicator will be distorted. As a conclusion, this formula can be used exclusively for an individual item of a certain product, and not for a group of products.

3. Formula for inventory turnover in days during the year - monetary value

=365 days / (cost of sales for 1 month. / average warehouse cost for 1 month. * 12 months) = 365 days / k turnover in times

As you can see, this formula consists of a numerator and a denominator. The numerator contains the number 365 (i.e. 365 days a year), the denominator contains the formula for inventory turnover in times, which we derived in formula 1 above. That is, to determine how many days it will take you to sell out your warehouse, you need to divide 365 days of the year by the turnover ratio.

4. Formula for inventory turnover in days during the year - natural expression

Inventory turnover in days= 365 days / (number of units sold in 1 month / average availability of goods in the company’s warehouse for 1 month * 12 months) = 365 days / k turnover in times

Like formula 2, which we discussed above, formula 4 can also be used solely to calculate inventory turnover for an individual product, rather than a group of products.

Examples of calculations:

Sales for January 2013 for the “tools” product group - $20,000.
Gross profit for January 2013 for the “tools” product group is $5,000.
The cost of the warehouse at the beginning of January 2013 for the “tools” product group is 86,500 USD.
The cost of the warehouse at the end of January 2013 for the “tools” product group is CU 73,400.

Calculation of turnover. Basis - monetary terms

k inventory turnover in January (NOT in annual terms) = (20,000 USD – 5,000 USD) / (86,500 USD + 73,400 USD) / 2 = 15,000 USD / $79,950 = 0.188 times per month
k inventory turnover in January (in annual terms) = (20,000 USD – 5,000 USD) / (86,500 USD + 73,400 USD) / 2 * 12 months = 15,000 USD / $79,950 * 12 months = 2.25 times a year
inventory turnover in days (in annual terms) = 365 days / 2.25 times a year = 162.2 days

Why do you need to calculate turnover?

It is worth saying that the turnover indicator itself is important in conjunction with the margin (profitability of the company’s sales). Inventory turnover and margins ultimately impact the profitability of a company's inventory investment. You can read about the relationship between inventory turnover and profitability of sales in the article "".

A few more words should be said about calculating the turnover rate. The following formula for calculating the turnover rate is common on the Internet:

OF – average order frequency in months (time interval between placing orders with the supplier);
L – average delivery period in months (time between placing an order and receiving the goods);
f is a coefficient that generalizes the effect of other factors influencing the theoretical number of revolutions. These are, in particular:

breadth of assortment in storage, i.e. the need to store slow-moving stocks (usually for marketing purposes);
larger than required purchases to receive volume discounts;
supplier requirements for the minimum purchase quantity;
supplier unreliability;
economic order quantity (EOQ) policy factors;
overstocking for the purpose of promoting goods;
use of delivery in two or more stages.

It is worth saying that the proposed formula for me personally seems to be of little use precisely because of the f component, which should reflect the influence of other factors. I, in turn, propose to determine the turnover rate based on , at the output of which we know what level of selling items the company has in its warehouse, what the cost of inventory is overestimated, how much money is frozen in the company. Knowing these characteristics of your inventory and understanding your goals for these components, you can determine the desired standard inventory level for your company, which it will achieve by selling a share of illiquid items and increasing the availability of marketable goods to the desired level. Also, do not forget about the leaders of the market in which your company operates. Find out what turnover rates these companies have, what margin levels they have, and how this all affects the return on investment in the inventory they have invested. However, when analyzing leading competitors in the market, do not rush to draw conclusions based on two criteria (margin and turnover), since each company may have its own specific aspects of doing business, which may allow them to exist successfully with relatively low analyzed indicators.

P.S. The above formulas and calculations are used to calculate inventory turnover according to the company's monthly statistics. If you need to calculate inventory turnover and you have annual company statistics, then use the following formula:

k turnover= cost of sales in USD for the year / average monthly value of the cost of warehouse inventories in c.u. during a year,

cost of sales in USD in a year= sales amount in USD for the year - gross profit in c.u. in a year,
average monthly value of the cost of warehouse inventories in c.u. during a year= (cost price of the warehouse at the beginning of January in cu + cost of the warehouse at the beginning of February in cu + … + cost of the warehouse at the beginning of December in cu) / 12 months

The turnover of inventories characterizes the speed of movement of material assets and their replenishment. The faster the turnover of capital placed in inventories, the less capital is required for a given volume of business transactions.

Inventory turnover varies greatly across industries. In industries with long operating cycles, inventory formation requires larger capital.

The turnover time of inventories of enterprises in the same industry, as a rule, characterizes how successfully they use capital. As was found out earlier, the accumulation of inventories is associated with a very significant additional outflow of funds, which makes it necessary to assess the possibility and feasibility of reducing the shelf life of material assets.

The level of inventories is determined by the volume of sales, the nature of production, the nature of inventories (the possibility of storing them), the possibility of supply interruptions and the cost of acquiring inventories (possible savings from purchasing larger volumes), etc.

The level of work in progress depends on the nature of production, industry characteristics, and the method of assessment.

The main factor to consider when analyzing finished goods inventory levels is the sales forecast. In turn, forecasting sales volume requires correct anticipation of customer needs. Therefore, one of the advantages of long-term economic ties is associated with the ability to coordinate production with the purchasing plans of buyers.

The assessment of inventory turnover is carried out for each type of inventory (inventory, finished goods, goods, etc.). In paragraph 3.1 it was noted that to estimate the rate of inventory turnover in a simplified way (according to reporting data), the formula is used

Inventory turnover = Cost of goods sold / Average inventory

Average inventory = Beginning of year inventory balances + End of year inventory balances / 2

A more accurate calculation of average inventory volume is based on data on monthly material balances.

The shelf life of inventories is determined by the formula
Inventory shelf life = Duration of the analyzed period * Average inventory / Cost of goods sold

To more accurately calculate the duration of inventory storage, formulas are used
Storage of inventories = Opz. * Duration of the analyzed period / Cost of consumed inventories

Storage of finished products = OPO * Duration of the analyzed period / Production cost of shipped (sold) products

An analysis of the state and dynamics of inventory turnover at the enterprise is presented in table. 3.22.

Table data 3.22 confirm earlier conclusions regarding the general slowdown in the turnover of current assets. This is clearly seen in the example of inventory turnover, the shelf life of which at the enterprise increased by 5.5 days compared to last year, which indicates the accumulation of inventories at the enterprise.

This situation is becoming increasingly common in the context of economic disruption and inflation. The fall in the purchasing power of money forces enterprises to invest temporarily available funds in inventories of materials. In addition, the accumulation of inventories is often a necessary measure to reduce the risk of non-delivery (short delivery) of raw materials and materials necessary for the production process of the enterprise. Let us note in this regard that an enterprise that focuses on one main supplier is in a more vulnerable position than enterprises that base their activities on contracts with several suppliers.

At the same time, it should be borne in mind that the policy of accumulating inventory inventories inevitably leads to an additional outflow of funds due to:
increase in costs arising in connection with the ownership of inventories (rent of warehouse premises and their maintenance, costs of moving inventories, property insurance, etc.);
increasing costs associated with the risk of losses due to obsolescence and damage, as well as theft and uncontrolled use of inventory items (it is well known: the greater the volume and shelf life of property, the more difficult it is to control its safety);
increasing the amount of taxes paid. In conditions of inflation, the actual cost of consumed inventories (the amount they are written off to cost) is significantly lower than their current market value. As a result, the amount of profit turns out to be “inflated”, but it is from it that the tax due will be calculated. The picture is similar with value added tax. The fact that as the volume of reserves increases, the amount of property tax increases probably does not require explanation;
diversion of funds from circulation, their “death.” Excessive inventories stop the movement of capital, disrupt the financial stability of activities, forcing the management of the enterprise to urgently find the funds necessary for current activities (usually expensive). Therefore, it is not without reason that excessive inventories of inventories are called the “graveyard of business.”

These and other negative consequences of the stockpiling policy often completely cover the positive effect of savings due to earlier purchases.

A significant cash outflow associated with the costs of creating and storing inventories makes it necessary to find ways to reduce them. In this case, of course, we are not talking about reducing the cost of creating and maintaining inventory inventories to a minimum. Such a solution would most likely be ineffective and would lead to an increase in other types of losses (for example, from damage and uncontrolled use of inventory items). The challenge is to find the “golden mean” between excessively large inventories, which can cause financial difficulties (lack of cash), and excessively small inventories, which are dangerous for the stability of production. Such a task cannot be solved in conditions of spontaneous formation of reserves - an established system for monitoring and analyzing the state of reserves is necessary.

In the theory and practice of inventory management, the following main signs of an unsatisfactory resource control system are distinguished:
a tendency towards a constant increase in the duration of inventory storage; continuous growth of inventories, noticeably outstripping the dynamics of increase in the volume of products sold;
frequent equipment downtime due to lack of materials; lack of storage space;
periodic refusal of urgent orders due to insufficient (lack of) inventories;
large amounts of write-offs due to the presence of obsolete (stale), slow-turning inventories;
significant volumes of write-offs of inventories due to their damage and theft.
The main goals of monitoring and analyzing the state of inventories: ensuring and maintaining liquidity and current solvency;
reducing production costs by reducing the cost of creating and storing inventories; reduction of lost working time and equipment downtime due to lack of raw materials; prevention of damage, theft and uncontrolled use of material assets.

Achieving the set goals involves performing the following accounting and analytical work.
1. Assessing the rationality of the inventory structure, allowing to identify resources whose volume is clearly excessive, and resources whose acquisition needs to be accelerated. This will avoid unnecessary capital investment in materials for which demand is declining or cannot be determined. It is equally important, when assessing the rationality of the inventory structure, to establish the volume and composition of spoiled and unusable materials. This ensures that inventories are maintained in the most liquid condition and the funds immobilized in inventories are reduced.
2. Determining the timing and volume of purchases of material assets. This is one of the most important and difficult tasks for analyzing the state of inventories for modern operating conditions of Russian enterprises.

Despite the ambiguity of the decisions made for each specific enterprise, there is a common approach to determining the volume of purchases that allows taking into account:
the average volume of material consumption during the operating cycle (usually determined based on the results of an analysis of the consumption of material resources in past periods and the volume of production under the conditions of expected sales);
additional quantity (safety stock) of resources to compensate for unforeseen costs of materials (for example, in the case of an urgent order) or to increase the period required to form the necessary reserves.

3. Selective regulation of inventories of material assets, suggesting that attention should be focused on expensive materials or materials that have high consumer appeal. In foreign practice, the so-called ABC method has become widespread, the techniques of which can also be applied at Russian enterprises. The basic idea of the ABC method is to evaluate each type of material in terms of its value. This means: the degree of use of the material for a specific period; the time required to replenish stocks of this material, and the costs (losses) associated with its absence from stock; the possibility of replacement, as well as losses from replacement.

A small share (usually up to 20%) of these material resources in the total volume of material assets stored in the warehouse determines the main amount of cash outflow during the formation of inventories (about 80%). Such materials are considered as resources of group A. Materials of group B are considered secondary; they are less expensive than group A materials, but exceed them in the number of items. Group C materials are considered relatively unimportant - these are the least expensive and most abundant material assets. Their acquisition and maintenance are accompanied by an insignificant (in comparison with the total amount) outflow of funds. Typically, the costs of storing such inventories are less than the costs of ensuring strict control over ordered batches, safety (reserve) stocks and warehouse balances.

Material resources are divided into the listed groups depending on the specific production conditions. The main thing here is that materials of group A are most carefully controlled. Particular attention is paid to: calculating the need for them; calendar planning for the formation of reserves and their use; justification of the amount of safety reserves; inventory.

Another useful method of monitoring the state of stocks of material assets in modern conditions of mass thefts can be their division into “sticky” ones, i.e. scarce or expensive (for example, precious metals, alcohol, narcotic drugs), to which special storage conditions and additional methods of controlling their movement, and “non-sticky” ones, for which storage in bulk, unauthorized use and “boiler” accounting are allowed.

4. Calculation of turnover indicators of the main groups of inventories and their comparison with similar indicators of past periods in order to establish the correspondence of the availability of inventories to the current needs of the enterprise. To do this, calculate the turnover of materials accounted for in various subaccounts (“Raw materials and materials”, “Purchased semi-finished products and components, structures and parts”, “Fuel”, “Containers and packaging materials”, “Spare parts”, etc.), and then the total turnover of materials by determining the weighted average.

Calculation of turnover by type of material assets is presented in table. 3.23.

As you can see, other materials have the longest shelf life (about 120 days). At the same time, we must assume that the main opportunities for reducing the outflow of funds in connection with the creation of inventories do not lie here. Considering that the specific gravity of the material is less than 3% of the cost of materials consumed, it can be assumed that it will be classified as group C.

As already noted, it is necessary to subject a detailed analysis to the state and movement of material assets, the creation of reserves of which causes the main outflow of funds, i.e., resources of group A. It is quite possible that in the analyzed enterprise this group will include resources accounted for under the item “Raw materials” and materials." The feasibility of creating stocks of raw materials and materials corresponding to the volume of their 2-month consumption (54.4 days) must be assessed based on the specific conditions of the enterprise.

The system of indicators used to analyze the turnover of working capital of an enterprise is given in Appendix 4.

When analyzing working capital turnover, you need to pay attention to the following:
the duration of the enterprise's operating cycle and its components; the main reasons for changes in the duration of the operating cycle; the ratio of the duration of the operating cycle and the period of repayment of accounts payable;
reasons for discrepancies in financial results and changes in cash flows;
main factors of cash outflow;
receivables turnover rate;
validity of the current shelf life of inventory
values.

Everything that lies in our warehouse or moves towards it is a current asset of the store. But these are also frozen funds, the return of which we are looking forward to. To understand how long it takes us to “take” money out of circulation and invest it in inventories, we conduct an inventory turnover analysis.

If there is a product, then this is certainly good, but only until there is too much of it. The warehouse is full of goods - we pay taxes on the inventory, but it sells too slowly. Then we say – product turnover is low. But if it is very high, it means that the product is selling quickly, too quickly. Then the buyer, coming to us, runs the risk of not finding the right product. The answer is the ability to analyze and plan inventory turnover.

Concepts we operate with

Each manager uses terms such as “inventory”, “turnover”, “output”, “turnover”, “turnover ratio”, etc. However, when using economic and mathematical methods of analysis, confusion often arises in these concepts. As you know, exact sciences require precise definitions. Let's try to understand the terminology before we look at the concept of turnover in detail.

PRODUCT– products that are bought and sold; it is part of inventory. A product can also be a service if we require money from our buyer for it (delivery, packaging, payment for mobile communications by cards, etc.).

INVENTORIES– this is a list of assets (goods, services) of the company suitable for sale. If you're a retail and wholesale business, your inventory includes not only the products on your shelves, but also the products you have in stock, shipping, storing, or receiving—anything that can be sold.

If we're talking about STOCK, then goods in transit, goods in warehouse and goods in accounts receivable are considered as such (since the ownership of it remains with you until it is paid by the buyer, and theoretically you can return it to your warehouse for subsequent sale ). BUT: to calculate turnover, goods in transit and goods in accounts receivable are not taken into account - only the goods present in our warehouse are important to us.

AVERAGE STOCK (TZav)– the quantity that we need for the analysis itself.
How is it calculated TZsr for the period, see table 1 and example below:

Example

Calculation of average inventory ( TZsr) per year for a company selling, for example, small household chemicals and household goods:

Average TK for 12 months will be $51,066.

There is also a simplified formula for calculating average balances:

TZsr’ = (balances at the beginning of the period + balances at the end of the period) / 2.

In the above example TZsr‘ will be equal to (45,880 + 53,878)/2 = $49,879. However, when calculating turnover, it is still better to use the first formula (it is also called the average chronological moment series) - it is more accurate.

TRADE TURNOVER (T)– the volume of sales of goods and provision of services in monetary terms for a certain period of time. Trade turnover is calculated in purchase prices or cost prices. For example, we say: “The store’s turnover in December was 40,000 rubles.” This means that in December we sold goods worth 39,000 rubles and also provided services for home delivery of goods to our customers for 1,000 rubles.

Turnover and turnover ratio

The financial success of a company, an indicator of its liquidity and solvency directly depends on how quickly funds invested in reserves are converted into hard cash.

As an indicator of inventory liquidity, it is used INVENTORY TURNOVER RATIO, which is most often called simply turnover.

This coefficient can be calculated according to different parameters (by cost, by quantity) and for different periods (month, year), for one product or for categories.

There are several types of inventory turnover:

turnover of each product item in quantitative terms (by pieces, by volume, by weight, etc.)
turnover of each item of goods by cost
turnover of a set of items or the entire inventory in quantitative terms
turnover of a set of items or the entire inventory by value

For us, two indicators will be relevant - turnover in days, as well as the number of product turnovers.

INVENTORY TURNOVER (IT) or INVENTORY TURNOVER RATE.
The speed at which goods turn around (that is, they come to the warehouse and leave it) is an indicator that characterizes the effectiveness of the interaction between procurement and sales. There is also the term “TURNOVER”, which in this case is the same thing.

Turnover is calculated using the classic formula:

(Balance of goods at the beginning of the month)/(Turnover for the month)

But for increased accuracy and correct calculation, instead of the balance of goods at the beginning of the period, we will use the average inventory (ASV)

LET'S NOTE THREE IMPORTANT POINTS before we begin calculating turnover.

1. If the company does not have inventories, then there is no point in calculating turnover: for example, we sell services (run a beauty salon or provide consultations to the public) or make deliveries to the buyer from the supplier’s warehouse, bypassing our own warehouse (for example, an online bookstore).

2. If we unexpectedly implemented a large project and sold an unusually large batch of goods to the buyer’s order. For example, the company won a tender for the supply of finishing materials to a shopping center under construction nearby and delivered a large batch of plumbing fixtures to the warehouse for this project. In this case, the goods supplied for this project should not be taken into account, since this was a targeted delivery of goods already sold in advance.

In both cases, the store or company makes a profit, but the inventory in the warehouse remains untouched.

In fact, we are only interested in LIVING STOCK - this is the quantity of goods that:

came to the warehouse or was sold during the period under review (that is, any of its movements); if there was no movement (for example, elite cognac was not sold for a whole month), then it is necessary to enlarge the analysis period for this product
and also this is the quantity of goods for which there was no movement, but the goods were on balance (including those with a negative balance)

If goods in the warehouse were reset to zero, then these days must be deleted from the turnover analysis.

3. All calculations for turnover must be carried out in purchase prices. Trade turnover is calculated not at the selling price, but at the price of the purchased goods.

Formulas for calculating turnover

1. TURNOVER IN DAYS- the number of days required to sell existing inventory, sometimes also called the average shelf life of goods in days. This way you can find out how many days it takes to sell average inventory.

Example

The product position “Hand Cream” is analyzed; as an example, Table 2 shows sales and inventory data for six months.

Let's calculate the turnover in days (how many days it takes us to sell the average stock of goods).

The average stock of cream is 328 pieces, the number of days on sale is 180, the sales volume for six months was 1,701 pieces.

Obdn = 328 pcs. (180 days / 1701 pieces = 34.71 days.

The average supply of cream turns over in 34–35 days.

2. TURNOVER IN TIMES– how many revolutions the product makes during the period (see formula 3).

The higher the company's inventory turnover, the more efficient its activities are, the lower the need for working capital and the more stable the financial position of the enterprise, all other things being equal.

Example

Let's calculate the turnover in revolutions (how many times the stock is sold in six months) for the same cream.
1st option: Image = 180 days. / 34.71 = 5.19 times.
2nd option: Image = 1701 pcs. / 328 pcs. = 5.19 times.
Inventory turns over on average 5 times every six months.

3. PRODUCT INVENTORY LEVEL (STL)- an indicator characterizing the store’s supply of stocks on a certain date, in other words, for how many days of trading (given the current turnover) this stock will be enough:

Example

How many days will our existing supply of cream last?

Utz = 243 pcs. (180 days / 1701 pieces = 25.71.

For 25–26 days.

You can calculate turnover not in pieces or other units, but in rubles or other currencies, that is, by cost. But the final data will still correlate with each other (the difference will only be due to rounding of numbers) - see table. 3.

What does turnover give?

The main goal of inventory turnover analysis is to identify those products for which the speed of the “product-money-product” cycle is minimal in order to make a decision about their future fate.

To illustrate, consider an example of analyzing the turnover ratio of two goods – bread and cognac, which are part of the assortment of a grocery store (see Tables 4 and 5).

From this table it can be seen that bread and expensive cognac have completely different indicators - the turnover of bread is several times higher than cognac. But it is unlawful to compare products from different product categories - such a comparison gives us nothing. Obviously, bread has one task in the store, and cognac has a completely different one, and perhaps the store earns more from one bottle of cognac than from bread sales in a week.

Therefore, we will compare products within the category with each other - bread will be compared with other bread products (but not with cookies!), and cognac - with other elite alcoholic products (but not with beer!). Then we will be able to draw conclusions about the turnover of the product within the category and compare it with other products with similar properties.

Comparing products within the category, we can draw conclusions that tequila has a longer turnover period than the same cognac, and the intensity of turnover is lower, and that whiskey in the category of elite alcoholic drinks has the highest turnover, and vodka (despite that its sales are twice as high as those of tequila) this figure is lower, which apparently requires adjusting the warehouse stock - perhaps vodka needs to be imported more often, but in smaller batches.

In addition, it is important to track the dynamics of changes in turnover in turnover (Obr) - compare with the previous period, with the same period last year: a decrease in turnover may indicate either a drop in demand, or an accumulation of poor quality goods or outdated samples.

Turnover in itself does not mean anything - you need to track the dynamics of changes in the coefficient (Turn), taking into account the following factors:

the coefficient decreases - the warehouse is overstocked
the coefficient is growing or very high (shelf life is less than one day) - working “on wheels”, which is fraught with the lack of goods in stock

In conditions of constant shortage, the average amount of warehouse stock can be equal to zero - for example, if demand is growing all the time, but we do not have time to deliver goods and sell them “off the shelf”. In this case, there is no point in calculating the turnover ratio in days - perhaps it should be calculated in hours or, conversely, in weeks.

If a company is forced to store goods of irregular demand or highly seasonal goods in a warehouse, then achieving high turnover is not an easy task. To ensure customer satisfaction, we will be forced to stock a wide range of hard-to-find items, which will slow down overall inventory turnover. Therefore, the calculation of turnover for all inventories in the company is incorrect. It would be correct to count by category and by product within categories (product items).

Also, for a store, the terms of delivery of goods play an important role: if the purchase of goods is made using its own funds, then turnover is very important and indicative; if on credit, then you invest your own funds to a lesser extent or do not invest at all, then low turnover of goods is not critical - the main thing is that the loan repayment period does not exceed the turnover rate. If the goods are taken mainly on terms of sale, then first of all it is necessary to proceed from the volume of warehouse space, and turnover for such a store is the last most important indicator.

Turnover and attrition

It is important not to confuse the two concepts – turnover and attrition.

TURNOVER– this is the number of product turnovers for the period.

CARE- an indicator that tells how many days it takes for a product to leave the warehouse. If when calculating we do not operate with the average technical specifications, but calculate the turnover of one batch, then in reality we are talking about departure.

Example

On March 1, a batch of pencils in the amount of 1000 pieces arrived at the warehouse
On March 31, there were no pencils left in stock (0)
Sales equal to 1000 units

It seems that the turnover is equal to 1, that is, this stock turns over once a month. But it is necessary to understand that in this case we are talking about one batch and the time of its implementation. One batch doesn’t turn around in a month, it “goes away.”

If we calculate using the average stock, it turns out that on average there were 500 pieces in the warehouse per month.

1000/((1000 + 0)/2) = 2,

that is, it turns out that the average inventory turnover (500 pieces) will be equal to two periods.

That is, if we brought two batches of pencils of 500 pieces each, then each batch would be sold in 15 days. In this case, it is incorrect to calculate turnover, because we are talking about one batch and do not take into account the period when pencils were sold to zero balance - perhaps this happened in the middle of the month.

To calculate the inventory turnover ratio, batch accounting is not needed. There is an inflow of goods and an outflow of goods. Given a period (for example, 1 month), we can calculate the average inventory for the period and divide the sales volume by it.

Turnover rate

Very often you can hear the question: “What turnover rates exist? Which is correct?

Turnover ratio does not have recommended values. There is only one rule: the higher it is, the less time the goods are in the warehouse, the faster they turn into money.

But companies always have the concept of “TURN OVER RATE” and each company has its own concept.
TURNOVER RATE- this is the number of days (or turnover) for which, in the opinion of the company’s management, the stock of goods must be sold so that the trade can be considered successful.

Each industry has its own standards. Some companies have different standards for different product groups. So, for example, our trading company used the following norms (turnovers per year):

In one of the chain supermarkets, the turnover rate for the non-food group is divided on the basis of ABC analysis: for goods A - 10 days, for goods of group B - 20 days, for C - 30. In this retail network, monthly turnover is included in the inventory indicator, and The inventory balance in the store consists of the turnover rate plus safety stock.

Also, some financial analysis specialists use Western standards.

Example

Dobronravin E. in the article “Turnover ratio and service level - indicators of inventory efficiency” writes:

“Usually, traders of industrial goods in Western enterprises have a turnover ratio of 6 if profitability is 20–30%.
If the profitability is 15%, the number of turns is approximately 8.
If the profitability is 40%, then a solid profit can be obtained with 3 turns per year.
However, as noted earlier, it does not follow that if 6 turns is good, then 8 or 10 turns are better. These data are indicative when planning general indicators.”

Henry Assell, in his book Marketing: Principles and Strategy, writes: “In order for businesses to operate profitably, their inventory must be turned over 25 to 30 times a year.” An interesting method for calculating the turnover rate is proposed by Dobronravin E. He uses a Western development that takes into account many variable factors: the frequency with which goods are ordered, transportation time, delivery reliability, minimum order sizes, the need to store certain volumes, etc.

What is the optimal amount of inventory turnover that can be included in the plan of a particular enterprise? Charles Bodenstab analyzed a large number of companies using one of the SIC systems in inventory management. The results of the empirical study were summarized in the following formula:

f in the proposed formula - a coefficient that generalizes the effect of other factors influencing the theoretical number of revolutions. These factors are:

breadth of assortment in storage, that is, the need to store slow-moving stocks for marketing purposes
larger than required purchases to obtain volume discounts
requirements for a minimum purchase quantity from the supplier
supplier unreliability
economic order quantity (EOQ) policy factors
overstocking for promotional purposes (promotion of goods)
use of delivery in two or more stages

If these factors are at normal levels, then the coefficient should be about 1.5. If one or more factors have an extreme level, then the coefficient takes the value 2.0.

Example

The store has factors (they are indicated in Table 6) applied for different suppliers.
You can give several examples of what the turnover rate will look like when the formula is applied (see Table 7).

This means that if on average we import GOODS 3 twice a month (0.5) and transport it for 1 month, despite the fact that some factors (perhaps the supplier is unreliable) are not ideal, then the turnover rate can be considered 9.52. And for PRODUCT 5, which we rarely import (it takes a long time, and the influencing factors are very far from ideal), it is better to set a turnover rate of 1.67 and not demand too much from its sale.

But the practice of Western companies is very different from Russian conditions - too much depends on logistics, purchase volumes and delivery times, supplier reliability, market growth and demand for goods. If all suppliers are local and turnover is high, then the coefficients can reach 30–40 turnovers per year. If supplies are intermittent, the supplier is unreliable and, as often happens, demand fluctuates, then for a similar product in a distant region of Russia the turnover will be 10–12 turns per year, and this is normal

Turnover rates will be higher for small enterprises working for the final consumer, and much lower for enterprises producing products of group A (means of production) - due to the length of the production cycle.

Again, there is a danger of roughly following the standards: for example, you do not fit into the turnover standard and begin to reduce your safety stock. As a result, there are failures in the warehouse, there is a shortage of goods and unsatisfied demand. Or you start to reduce the order size - as a result, the costs of ordering, transporting and processing goods increase. Turnover increases, but availability problems remain.

The norm is a general indicator, and you should react and take action as soon as some negative trend is detected: for example, inventory growth is outpacing sales growth, and at the same time as sales growth, inventory turnover has decreased.

Then you need to evaluate all the products within the category (perhaps some individual items are purchased in excess) and make informed decisions: look for new suppliers who can provide shorter delivery times, or stimulate sales for this type of product, or give it a priority place in hall, or train salespeople to advise customers on this particular product, or replace it with another more well-known brand, etc.

Katerina Buzukova
Consultant for the Super-Retail project

Inventory turnover acts as a key criterion for assessing the rational use of inventory in the company. Moreover, based on the value inventory turnover, you can make a forecast calculation of the optimal balances of goods, materials or raw materials in the warehouse.

The essence of the term turnover

Being one of the indicators of the company’s business activity, inventory turnover shows how many times goods, materials or raw materials participated in complete production cycles during a certain time period, i.e. this is the number of revolutions. A high frequency of turnover indicates high management efficiency, usually accompanied by an increase in turnover and revenue. A fall inventory turnover most often means an excessive passion for accumulating valuables that are not fully used.

IMPORTANT! It is not worth relying only on the quantitative value of this indicator, because excessive balances in warehouses can be explained by preparation for a seasonal surge in sales, the need to get a discount on the purchase of large volumes of materials, or an attempt to reduce transportation costs.

Formula for inventory turnover in times

The main source of numerical information for determining inventory turnover serves as financial statements. For calculus inventory turnover ratio 2 approaches can be used:

Based on the cost of products and goods - in this case, the order of arithmetic operations will be as follows:

Ko = C r. / W av. ,

Co - inventory turnover;

From r. - cost of goods sold;

Based on the total sales volume, in this case to obtain inventory turnover use the formula

Ko = Vyr / Z avg. ,

Co - inventory turnover;

Vyr - sales volume for the period;

Z avg. - the simple arithmetic mean between the amounts of inventory balances at the beginning and end of the time period under study.

If the first method is more relevant for domestic practice, then the second in most cases is used by specialists from foreign countries. According to domestic analysts, the first calculation option inventory turnover gives a more accurate result, but using revenue as a basis contributes to a distortion of the result due to fluctuations in the markup level.

Described methods of how to get inventory turnover, give the result in times of turnover, the greater its value, the better the company is doing.

Inventory turnover formula in days

To solve problems related to forecasting the balances of goods and materials in warehouses, it is not the number of revolutions per period that is important, but the time of completion of one cycle in days. To do this, there is another approach to the order of determination inventory turnover:

Code = T/Co,

Code - coefficient in days;

T - time period of calculation in days (most often 365);

Co - inventory turnover in times.

There is no standard for both the first and second indicators. Organizations need to determine the optimal duration of inventory turnover independently, experimentally. In addition, for a better understanding of business processes, the analysis must be carried out over several periods of time.

However, the result in days must be interpreted according to a different logic. The longer the turnover period, the higher the remaining inventory and the lower the turnover; if the number of days is small, the turnover is high. However, even at this stage it is difficult to draw an unambiguous conclusion about the impact of the identified trend on the overall position of the company.

As a rule, similar coefficients are then analyzed by product range and materials. This is done jointly with the purchasing and sales department. You should definitely focus on the hard-to-sell portion of your inventory. Only after a comprehensive analysis can you proceed to the development of inventory management programs.

***

The indicator can be used as one of the significant criteria for business activity inventory turnover. It can be determined in the number of revolutions or in days of completion of one cycle. The information obtained on its basis should be analyzed over several periods. In this case, it is necessary to calculate not only for the company as a whole, but also for product groups. The package of analytical data obtained in this way serves as the basis for predicting the optimal level of inventory balances in the warehouse and is used for management purposes.