How to calculate Inventory Turns.

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M1EnterpriseTech
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How to calculate Inventory Turns.

Post by M1EnterpriseTech »

Inventory turns are calculated by taking your total sales for a product or category over a period of time and dividing it by your average level of inventory during that period.

In the case of a tire shop franchisee, you should do the calculation on a running YTD basis.
  • i.e. YTD tire cost of sales = $400,000
  • Tire inventory at month end = $90,000
Calculation = $400,000/ $90,000 = 4.44 Turns

Exercise: Use the examples below to calculate the turns:
2018-08-28_1058.png
2018-08-28_1058.png (5.73 KiB) Viewed 1663 times
As illustrated, turns can be calculated on all tires as a group, or broken down by manufacturer, or by line.

It would be extremely useful for a franchisee or manager to know what tire lines and manufacturers turn the most in your business.

What effect would Winter Tires have on your calculation if those tires can only be sold in a 3-4 month period but are still in your inventory?

Are Winter Tires included in your YTD Sales?

If so, then they have to be included in your Month End Inventory.

When doing the calculation out of Winter Tire Season, or if you receive a large inventory of Winter Tires in a period prior to the sell out,
then you should back out the Winter Tire Sales and the Winter Tire Inventory to get a realistic view of your turns.
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