Understanding Inventory Turnover and Days on Hand Metrics

Explore inventory turnover and days on hand metrics to improve stock management.

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Inventory turnover is a measure of how often inventory is sold and replaced over a period. Days on hand indicates the average number of days inventory remains unsold. To calculate inventory turnover, use the formula: Cost of Goods Sold (COGS) / Average Inventory. For days on hand, divide the number of days in the period by the inventory turnover ratio. These metrics help businesses optimize stock levels and manage supply chain efficiency.

FAQs & Answers

  1. How is inventory turnover calculated? Inventory turnover is calculated using the formula: Cost of Goods Sold (COGS) ÷ Average Inventory.
  2. What does days on hand mean? Days on hand indicates the average number of days that inventory remains unsold.
  3. Why is inventory turnover important? High inventory turnover indicates efficient sales performance and effective inventory management.
  4. How can I improve my inventory turnover ratio? You can improve your inventory turnover by enhancing sales strategies, adjusting pricing, and optimizing stock levels.

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