How to Calculate Inventory Turnover

Video Transcript

"Hi, I'm Spence and this is Jeannine with Account Teams, and we help people with their accounting and book work in Salt Lake City, and with some tax work and, and helping them get their businesses sorted out so they can concentrate on what they do best. I want to talk to you today a little bit about what inventory turn over means. I want to give you two big examples: let's suppose you're selling BMW's, you buy a BMW in 19, or in 2008, and in 2009, it's still sitting in your lot, well, you haven't got much turn over. Let's suppose you're a grocery store and are selling bread, and all the bread in the store gets sold and, or it gets turned over on the shelves in a day or two. If you can't turn it over that quick, it'll spoil and go bad, and you'll have to throw it away. So, inventory turn over is an important measure. In a grocery store, for example, they have so much shelf space in the grocery store, and they'll calculate how much the inventory turns over in each square foot of shelf space, and how much money is made off of each of those items. That determines how many jars of pickles get put on the shelves, and how many loaves of bread get put on the shelves, and the things that bring in the most money get the most shelf space. To calculate it, it's the total coast of the goods sold, divided by the current value of what you have left in your store."