Inventory Turnover formula
\[ \dfrac{\text{Cost of sales}}{\text{Average inventory}} \]
Terms
- Cost of sales, period total: Direct cost of the goods and services sold in the period.
- Inventory, average of opening and closing: Raw materials, work in progress, finished goods and goods for resale, at cost.
Result
Inventory Turnover is a ratio. Higher is better.
Target
There is no general target; compare with the company’s own history and with peers in the same industry.
Inventory Turnover pitfalls
- The numerator is cost of sales, not revenue: inventory is carried at cost, so dividing revenue by it inflates the turnover by the margin.
Inventory Turnover in Business Central
Cost of sales (period total)
- Category Cost of Goods Sold (26) and every category below it
- Plus 3 accounts assigned directly: 50310 Project Costs, 50320 Project Cost Applied, 50410 Purchase Variance, Retail
10 posting accounts in total.
The full account list is on the Cost of sales page.
Inventory (average of opening and closing)
- Category Inventory (6) and every category below it
12 posting accounts in total.
The full account list is on the Inventory page.
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