Free tools / Inventory turnover
Inventory turnover and days on hand.
How many times a year does your stock turn into sales, and how many days does the average item sit? Then the useful part: set a target, and see how much cash is sitting on the shelf that does not need to be.
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What the two numbers mean
days on hand = days in the period ÷ turnover
Turnover says how many times you sold through your stock. Days on hand says the same thing the way a person thinks about it: how long the average item waits before it sells. Six turns a year is about sixty days on the shelf.
Why cost of goods sold, not sales
Stock is valued at cost. Divide sales by it and you are comparing a selling price with a cost price, and a business with a fat margin looks like it turns stock faster than it does. Keep both sides at cost.
What is a good number?
It depends on the trade. Fast-moving consumables turn many times a year; spare parts held for customers who cannot wait turn slowly, on purpose. Compare with your own past and with the lead time from your suppliers: holding sixty days of something you can get in five is money asleep, and holding ten days of something that takes forty is a stock-out waiting.
The cash on the shelf
Every day of stock you stop holding is cash back in the bank, once. That is what the target shows. It is a one-off release, not a saving every year, though the holding cost you stop paying on it is.
Questions
Why average the opening and closing stock?
Because stock moves during the period, and either end alone can mislead: a business that runs stock down before year end looks faster than it is. If your stock swings with the seasons, average the month-end figures instead and enter that as both values.
Can turnover be too high?
Yes. Very high turnover with frequent stock-outs means you are losing sales to save on stock. Look at it beside your fill rate.
Should I work this out per product?
Yes, when you can. A healthy average hides slow lines behind fast ones, and the slow lines are where the cash is stuck.
Is my data sent anywhere?
No. The sums are done in your browser.
Inventory turnover is not something the product works out yet. That is why this tool stands alone.
Want stock figures you can trust to start from?
OrbisVendor holds stock per location, and an approved order commits its lines where they actually sit.
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