![]() ![]() Your inventory turnover metrics can tell you a lot about your inventory management process and help you make some important strategic decisions. DSI goes by many other names, including the average age of inventory, days in inventory (DII) and days inventory outstanding (DIO). You can calculate your DSI by multiplying your stock turns ratio by 365. A lower DSI is usually preferable because it means a company can turn its inventory on hand into profits faster. This metric measures the average time in days it takes a company to turn its stock into sales. You might also hear the term “inventory turns.” This means essentially the same thing - the number represents how many inventory turns occurred within the period.Īnother figure that’s similar to inventory turnover is days sales of inventory (DSI). If you’re using annual inventory turnover, a rate of 4 means the company turned over its stock four times that year. ![]() Tracking quarterly and even monthly stock turns can also be helpful. Typically, companies calculate their inventory turnover for the fiscal year. A faster ratio may mean the company doesn’t have enough supply on hand or that sales are particularly strong. Low inventory turnover may also mean that products have time to expire, deteriorate or go out of season before they sell. A slow turnover rate may indicate that a company has too much stock or weak sales numbers. This ratio measures efficiency for how the company purchases and sells goods. Inventory turnover is a metric representing how many times a company sells and replaces its stock entirely within a given period. ![]() Let’s talk more about this critical metric and how to calculate inventory turnover for your own business. This makes inventory turnover one of your most important performance indicators, both for your stock management team and for your company as a whole. When inventory is sold faster, companies have better cash flow and face fewer risks associated with unsold stock. It’s also one of your riskiest investments since your profitability depends on selling off your inventory and turning it into cash - also known as turning it over. It can provide them with a number of insights regarding their inventory management, specifically in relation to how efficiently it is being managed.As an e-commerce business, your merchandise is your most valuable asset. This average can then be used as a baseline for future analyses.Īn inventory turnover ratio is a useful calculation for businesses to refer to. However, it is important to first compare inventory turnover ratios of other similar firms in a given sector to determine what the average is. Higher ratios can be a positive indication of a business's performance. A higher ratio would match the increased speed at which such products are intended to be sold. This result can still be considered reasonably good for a sizable organization with a breadth of products across multiple niches.ĪBC Company’s inventory turnover ratio would not be as acceptable for a company that offers products meant for immediate consumption. By implication, the company's products remain in stock for a longer amount of time before being sold. In this example, ABC Company’s inventory turnover ratio is fairly low. This yields a result of 0.71, meaning that ABC Company sold 71% of its product inventory in the year. ![]()
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