The average period of inventory turnover. Inventory turnover analysis

inventory turnover (inventory turnover) shows how many times during the period under review the company used the available average inventory balance. characterizes the quality of the company's stocks, the effectiveness of their management, allows you to identify the remains of unused, obsolete or substandard stocks. The importance of the indicator is connected with the fact that profit occurs with each "turnover" of stocks (ie, use in production, operating cycle).

In most theoretical sources inventory turnover ratio is calculated as the ratio of the cost of production to the average value of stocks for the period, work in progress and finished goods in stock (inventory turnover by value - Oz):

Oz \u003d C / ((Znp + Zkp) / 2)

Where,
C - the cost of products manufactured in the billing period;
Znp, Zkp - the value of the balance of inventories, work in progress and finished products in stock at the beginning and end of the period.

The total cost of goods sold during a given period, usually a year (Cost of goods sold rather than sales volume is preferred since the latter includes gross margin, which tends to inflate the turnover rate), divided by the average inventory during the period. of the same period, gives a number showing how many times the product has been turned around.

More visual and convenient for analysis is the inverse indicator - the period of circulation of stocks in days (Pos). It is calculated by the formula:

Pos = Tper / Oz

where, Tper is the duration of the period in days.

The higher the inventory turnover, the more efficient is its activity, the less the need for working capital and the more stable the financial position of the enterprise, all other things being equal.

The calculated periods of turnover of specific components of current assets and current liabilities have a real economic interpretation.

For example, an inventory turnover period of thirty days means that, given the production volume prevailing in this analysis period, the enterprise has stocks for 30 days.

Take into account several types of inventory turnover:

• the turnover of each item of goods in quantitative terms (by pieces, by volume, by weight, etc.);
• turnover of each item of goods by value;
• turnover of a set of items or the entire stock in quantitative terms;
• turnover of a set of items or the entire inventory by value.

The turnover estimate is essential element analysis of the efficiency with which the enterprise disposes of inventories. The acceleration of turnover is accompanied by an additional involvement of funds in circulation, and the slowdown is accompanied by the diversion of funds from economic circulation, their relatively longer deadening in stocks (in other words, the immobilization of one's own working capital). In addition, it is clear that the enterprise is additional expenses inventory, associated not only with storage costs, but also with the risk of damage and obsolescence of goods.

As a result, when managing stocks, stale and slow-moving goods, which are one of the main elements of immobilized (ie, excluded from active economic circulation) working capital, should be subject to special control and revision.

AT Western banking practice analysts usually use an alternative formula - the ratio of inventory to revenue multiplied by 365 days. The formula looks like:

Oz = (Inventory / Net Revenue) x 365

The value of stocks is taken at the end of the period, as it is usually estimated in dynamics. The value of inventories is correlated not with cost, but with revenue as one of the most important factors for credit analysis (thus providing a unified approach to companies that sell goods and services, because for the latter, most of the expenses are not for cost, but for general commercial and Administrative expenses). Many people believe that the correlation with the cost price gives a more accurate result, since there is a trade margin, which artificially increases turnover, but, on the other hand, the uniformity of the approach is preserved in this way (for example, asset turnover is revenue divided by the amount of assets), moreover, this method is convenient when calculating the operating cycle.

In principle, it is possible that at the beginning of the period and at the end of the period, the stocks are equal to zero. Then the turnover rate can be calculated by taking the average value of stocks in the period (of course, if you have access to this data).

Previously, it was certainly believed that accelerating the turnover of a warehouse is good. Inventory turnover characterizes the mobility of the funds that the company invests in the creation of stocks: the faster the money invested in stocks is returned to the enterprise in the form of proceeds from the sale of finished products, the higher the business activity of the organization. What gives us a more careful consideration of the processes taking place with the warehouse? The turnover itself does not mean anything - you need to track the dynamics of the change in the coefficient, taking into account the following factors:

1. the coefficient decreases - the warehouse is overstocked;
2. the coefficient is growing or very high (shelf life is less than one day) - work "from the wheels", which leads to failures in the shipment of goods to customers.

In conditions of constant shortages, the average value of the warehouse stock can be equal to zero: for example, if demand is growing all the time, and the company does not have time to bring goods. As a result, there are gaps in the warehouse, there are shortages of goods and unsatisfied demand. If the size of the order decreases, the costs of ordering, transporting and processing goods increase. Turnover increases, but availability problems remain. There are options for a justified increase in inventory - during a period of high inflation or expectations of sharp changes in exchange rates, as well as in anticipation of seasonal peaks in buying activity.

If a company is forced to store in a warehouse goods of irregular demand, goods with a pronounced seasonality, then achieving a high turnover is not an easy task. To ensure customer satisfaction, the company will be forced to have a wide range of infrequently sold products, which will slow down the overall inventory turnover. It is also possible that the supplier provides a good discount (for example, 5-10%) for a significant volume plus a significant deferred payment (in a crisis, such an offer is difficult to refuse).

Also for the store, the terms of delivery of the goods play an important role: if the purchase of goods is made using its own funds, then the turnover is very important and indicative. If in a loan, then own funds are invested to a lesser extent or not invested at all - then the low turnover of goods is not critical, the main thing is that the loan repayment period does not exceed the turnover indicator. If the goods are taken mainly on the terms of sale, then first of all it is necessary to proceed from the volume of storage facilities and the turnover for such a store is the last indicator in importance.

In fact, it is useful to remember more often that the numbers themselves do not say anything about the effectiveness of inventory management. For example, in retail bread and expensive cognac have completely different indicators - the turnover of bread is many times higher than cognac. Obviously, bread has one “task” in the store, while cognac has a completely different one, and, perhaps, the store earns more from one bottle of cognac than from bread sales in a week.

Money is the only and universal measure, and by no means kilograms, pieces, cubic meters, etc. Companies invest in a product some amount and want to get the most out of them (return on investment).

When determining this coefficient, an indicator is obtained that characterizes the number of inventory turnovers for a certain time interval. This coefficient indicates how many times for a certain period of time one or another type of inventory makes a complete cycle, i.e., reflects the inventory turnover.

Calculation of inventory turnover ratio

There are two options for calculating this indicator:

• at cost of sales;
• by sales revenue.

In the first option, when determining the inventory turnover, the numerator reflects the cost of sales, and the average value of the inventory for the analyzed period is substituted into the denominator of the formula.

K about. Inventory = Cost of sales / Average value of the company's inventory

With another option for calculating this coefficient, the numerator does not reflect the cost of sales, but revenue and the coefficient is calculated as follows:

K about. Inventory = Revenue / Average value of the company's inventory

In turn, the average value of the company's inventory is determined by the arithmetic mean, i.e., by the formula:

Average Inventory Value = (Opening Inventory Value + Ending Inventory Value) / 2.

Calculation of the inventory turnover ratio according to financial statements

From the statement of financial results, the indicator of line 2120 “Cost of sales” is put into the numerator of the formula. From the balance sheet to calculate the average cost of stocks, information is reflected on line 1210 "Stocks".

Calculation of the average cost of inventory by balance sheet looks like:

Average inventory value = (line 1210 "Inventory" at the beginning of the period + line 1210 "Inventory" at the end of the period) / 2.

According to financial statements, the formula for calculating the inventory turnover ratio is as follows:

K about. Inventory = Line 2120 Cost of Sales / Average Line 1210 Inventory

If, however, the “revenue” indicator is taken as the numerator for calculating this coefficient, then the formula is as follows:

K about. stocks = line 2110 "Revenue" / Average line 1210 "Stocks"

The duration of one inventory turnover in days means

In addition to the number of turnovers of stocks, their turnover is measured by the time of circulation or the duration of the turnover and is expressed in days of turnover. To determine the duration of one inventory turnover in days, the turnover ratio (in turnover) and the number of days in the period are used. The number of days in a period is taken to be 360 ​​or 365 days.

The number of days (duration) for which stocks make one revolution is calculated by the formula:

Duration of 1 inventory turnover = (Accepted annual number of days * Average value of the company's inventory) / Cost of sales

Duration of 1 inventory turnover = (Accepted annual number of days * Average value of the company's inventory) / Revenue

If the inventory turnover ratio is already known, then the duration of 1 inventory turnover is as follows:

Duration of 1 turnover of stocks = Accepted annual number of days / K vol. reserves

A decrease or increase in turnover ratios shows

An increase in the duration of turnover indicates a decrease in inventory turnover.

An increase in the rate of inventory turnover (i.e., the turnover ratio) means an increase in demand for goods, finished products enterprises, decrease - overstocking or decrease in demand.

An example of calculating the inventory turnover ratio

The initial data for calculating the coefficient and duration of turnover are presented in Table 1.

Table 1

The average inventory value is determined, and the data is entered in the table:

2014 = (50406 + 50406) / 2 = 50406 thousand rubles

2015 = (50406 + 57486) / 2 = 53946 thousand rubles

2016 = (57486 + 72595) / 2 = 65040.5 thousand rubles

Based on the data in the table, this coefficient is calculated:

K about. 2014 inventory: 306428 / 50406 = 6.07 turns;

K about. stocks 2015: 345323 / 57486 = 6.40 turns;

K about. 2016 inventory: 293016 / 65040.5 = 4.50 turns.

Based on the calculated inventory turnover ratio, the duration of inventory turnover is calculated:

2014: 360 / 6.07 = 59.30 days;

2015: 360 / 6.40 = 56.25 days;

2016: 360 / 4.50 = 80 days.

In 2015, compared to 2014, we can talk about an increase in the business activity of the enterprise, since the duration of one inventory turnover decreased by 3.05 days (from 59.30 days to 56.25 days), and the inventory turnover increased by 0.33 times (from 6.07 revolutions to 6.40 revolutions). The data in Table 2 indicate a slowdown in inventory turnover and a decrease in business activity of the enterprise in 2016 compared to 2015: inventory turnover decreased by 1.9 turnovers (from 6.40 turnovers to 4.50 turnovers), and the duration of inventory turnover increased by 23.75 days (from 56.25 days to 80 days), which is a negative trend and indicates a decrease in demand for finished products or goods that are included in the company's stocks.

The turnover ratios and the duration of inventory turnover, calculated at the cost of sales and revenue, will differ significantly from each other, which is associated with the excess of revenue over the cost of sales.

Turnover ratio- a parameter by calculating which it is possible to estimate the rate of turnover (application) of specific liabilities or assets of the company. As a rule, turnover ratios act as parameters of the organization's business activity.

Turnover ratios- several parameters that characterize the level of business activity in the short and long term. These include a number of ratios - working capital and asset turnover, receivables and payables, as well as stocks. Equity and cash ratios also fall into this category.

The essence of the turnover ratio

Calculation of indicators of business activity is carried out using a number of qualitative and quantitative parameters - turnover ratios. The main criteria for these parameters include:

Business reputation of the company;
- the presence of regular buyers and suppliers;
- the width of the sales market (external and internal);
- competitiveness of the enterprise and so on.

For qualitative assessment the resulting criteria should be compared with similar parameters from competitors. At the same time, information for comparison should not be taken from financial statements (as is usually the case), but from marketing research.

The criteria mentioned above are reflected in relative and absolute parameters. The latter include the volume of assets used in the work of the company, the volume of sales of finished goods, the volume of own profit (capital). Quantitative parameters are compared in relation to different periods (it can be a quarter or a year).

The optimal ratio should look like this:

Net Income Growth Rate > Product Sales Profit Growth Rate > Net Asset Growth Rate > 100%.

3. The turnover ratio of current (current) assets displays how quickly the . Using this coefficient, you can determine what turnover the current assets made for a certain period (usually a year) and how much profit they brought.

Everything that lies in our warehouse or moves towards it is a current asset of the store. But these are also frozen funds, the return of which we are looking forward to. To understand how long we "take" money out of circulation and invest it in stocks, we analyze the turnover of commodity stocks.

If there is a product, then this is certainly good, but only as long as it does not become too much. The warehouse is full of goods - we pay taxes on stocks, but it is sold too slowly. Then we say - the turnover of goods is low. But if it is very high, it means that the product is being sold quickly, too quickly. Then the buyer, having come to us, runs the risk of not finding desired product. The answer lies in the ability to analyze and plan inventory turnover.

Concepts with which we operate

Each manager operates with such terms as “inventory”, “turnover”, “withdrawal”, “turnover”, “turnover ratio”, etc. However, when using economic and mathematical methods analysis, confusion often arises in these concepts. As you know, the exact sciences require precise definitions. Let's try to understand the terminology before we consider the concept of turnover in detail.

PRODUCT- products that are sold and bought; it is part of the inventory. A service can also be a product if we demand money from our buyer for it (delivery, packaging, payment for mobile communications by cards, etc.).

INVENTORIES- this is a list of assets (goods, services) of the company suitable for sale. If you are a retailer and wholesale trade, then your inventory is not only the products on the shelves, but also the goods that are in stock, delivered, stored or received - everything that is up for sale.

If we're talking about STOCK, then goods in transit, goods in stock, and goods in receivables are considered as such (because you retain ownership of it until it is paid for by the buyer, and theoretically you can return it to your warehouse for subsequent sale ). BUT: to calculate the turnover, goods in transit and goods in receivables are not taken into account - only the goods present in our warehouse are important to us.

AVERAGE COMMODITY STOCK (ТЗav)- the value that we need for the actual analysis.
How is it calculated TZav for the period, see table 1 and the example below:

Example

Calculation of the average inventory ( TZav) per year for a company trading, for example, a small household chemicals and home goods:

Average TK for 12 months will be $51,066.

There is also a simplified formula for calculating average balances:

TZav’ = (balances at the beginning of the period + balances at the end of the period) / 2.

In the above example TZav‘ will be equal to (45,880 + 53,878)/2 = $49,879. However, when calculating turnover, it is still better to use the first formula (it is also called the average chronological moment series) - it is more accurate.

TURNOVER (T)- the volume of sales of goods and the provision of services in monetary terms for a certain period of time. The turnover is calculated in purchase prices or cost prices. For example, we say: "The turnover of the store in December amounted to 40,000 rubles." This means that in December we sold goods worth 39,000 rubles and also provided home delivery services for our customers worth 1,000 rubles.

turnover and turnover ratio

The financial success of the company, the indicator of its liquidity and solvency directly depends on how quickly the funds invested in stocks turn into real money.

As an indicator of the liquidity of stocks is used INVENTORY TURNOVER RATIO, which is most often referred to simply as turnover.

This ratio can be calculated from different parameters(by value, by quantity) and for different periods(month, year), for one product or for categories.

There are several types of inventory turnover:

• turnover of each item of goods in quantitative terms (by pieces, by volume, by weight, etc.)
• turnover of each item by value
• turnover of a set of items or the entire stock in quantitative terms
• turnover of a set of items or the entire inventory by value

For us, two indicators will be relevant - the turnover in days, as well as the number of revolutions of the goods.

INVENTORY TURNOVER (RO) or INVENTORY TURNOVER SPEED.
The speed with which the goods turn around (that is, they come to the warehouse and leave it) is an indicator that characterizes the effectiveness of the interaction between purchases and sales. There is also the term "COMMODITY TURNOVER", which in this case is one and the same.

The turnover is calculated according to the classical formula:

(Balance of goods at the beginning of the month)/(Turnover for the month)

But for increased accuracy and correct calculation, instead of the balance of goods at the beginning of the period, we will use the average inventory (TSav)

Let's note THREE IMPORTANT POINTS before proceeding to the calculation of turnover.

1. If the company does not have stocks, then it makes no sense to calculate the turnover: for example, we trade in services (run a beauty salon or give consultations to the public) or we deliver to the buyer from the supplier’s warehouse, bypassing our own warehouse (for example, an online bookstore).

2. If we unexpectedly implemented some major project and sold an unusually large batch of goods under the buyer's order. For example, a company won a tender to supply finishing materials in a building nearby shopping center and under this project brought to the warehouse a large batch of plumbing. In this case, the goods delivered under this project should not be taken into account, since it was the target delivery of goods already sold in advance.

In both cases, the store or company makes a profit, but the inventory in the warehouse remains intact.

In fact, we are only interested in LIVE STOCK - this is the amount of goods that:

• came to the warehouse or was sold for the period under review (that is, any of its movements); if there was no movement (for example, elite cognac was not sold for a whole month), then it is necessary to enlarge the analysis period for this product
• and also this is the quantity of goods for which there was no movement, but the goods were on the balance (including those with a negative balance)

If there was a zeroing of goods in the warehouse, then these days must be deleted from the turnover analysis.

3. All calculations on turnover must be carried out in purchase prices. The turnover is considered not at the selling price, but at the price of the purchased goods.

Formulas for calculating turnover

1. TURNOVER IN DAYS- the number of days required to sell the available inventory, sometimes it is also called the average shelf life of goods in days. This way you can find out how many days it takes to sell an average inventory.

Example

The heading "Hand Cream" is analyzed, as an example, Table 2 shows data on sales and stocks for six months.

Calculate the turnover in days (how many days we sell the average stock of goods).

The average stock of cream is 328 pieces, the number of days on sale is 180, the sales volume for half a year was 1701 pieces.

Obdn = 328 pcs. (180 days / 1701 pieces = 34.71 days

The average supply of cream turns around in 34-35 days.

2. TURNOVER IN TIMES- how many revolutions does the product make per period (see formula 3).

The higher the company's inventory turnover, the more efficient its activities, the less the need for working capital and the more stable the financial position of the enterprise, all other things being equal.

Example

Let's calculate the turnover in turnover (how many times the stock is sold for six months) for the same cream.
1st option: Image = 180 days. / 34.71 = 5.19 times.
2nd option: Image = 1701 pcs. / 328 pcs. = 5.19 times.
The stock turns over an average of 5 times per six months.

3. INVENTORY LEVEL (UTL)- an indicator characterizing the supply of the store with stocks on a certain date, in other words, for how many days of trade (with the current turnover) this stock will last:

Example

How many days will our existing supply of cream last?

Utz = 243 pcs. (180 days / 1701 pieces = 25.71.

For 25–26 days.

You can calculate the turnover not in pieces or other units, but in rubles or another currency, that is, by cost. But the final data will still be correlated with each other (the difference will be only due to rounding of numbers) - see table. 3.

What gives turnover?

The main purpose of inventory turnover analysis is to identify those goods for which the cycle rate "goods-money-goods" is minimal in order to decide on their future fate.

To illustrate, consider an example of the analysis of the turnover ratio of two products - bread and cognac, which are part of the assortment grocery store(see tables 4 and 5).

This table shows that bread and expensive cognac have completely different indicators - the turnover of bread is many times higher than cognac. But it is illegal to compare products from different product categories - such a comparison does not give us anything. Obviously, bread has one task in the store, while cognac has a completely different one, and it is possible that the store earns more from one bottle of cognac than from sales of bread in a week.

Therefore, we will compare products within the category with each other - bread is comparable with other bread products (but not with cookies!), And cognac - with other elite alcoholic products (but not with beer!). Then we can draw conclusions about the turnover of a product within a category and compare it with other products with similar properties.

Comparing products within a category, we can conclude that tequila has a longer turnover period than the same cognac, and the turnover rate is less, and that whiskey is in the elite category. alcoholic beverages have the highest turnover, and for vodka (despite the fact that its sales are twice as high as for tequila), this indicator is lower, which, apparently, requires adjusting the inventory - perhaps vodka should be imported more often, but in smaller batches.

In addition, it is important to track the dynamics of changes in turnover in turnover (Rev) - compare with the previous period, with the same period last year: a decrease in turnover may indicate either a drop in demand or an accumulation of goods Bad quality or outdated designs.

The turnover itself does not mean anything - you need to track the dynamics of the change in the coefficient (Rev), taking into account the following factors:

• the coefficient decreases - the warehouse is overstocked
• the coefficient is growing or very high (shelf life is less than one day) - work "from wheels", which is fraught with a lack of goods in the warehouse

In conditions of constant shortages, the average inventory level can be zero - for example, if demand is growing all the time, and we do not have time to bring goods and sell them “off the wheel”. In this case, it makes no sense to calculate the turnover ratio in days - perhaps it should be calculated in hours or, conversely, in weeks.

If a company is forced to store in a warehouse goods of irregular demand, goods with a strongly pronounced seasonality, then achieving a high turnover is not an easy task. To ensure customer satisfaction, we will be forced to have a wide range of infrequently sold items, which will slow down the overall inventory turnover. Therefore, the calculation of turnover for all stocks in the company is incorrect. It will be correct to count by categories and by goods within categories (headings).

Also for the store, the conditions for the delivery of goods play an important role: if the purchase of goods is made using its own funds, then the turnover is very important and indicative; if on credit, then you invest your own funds to a lesser extent or do not invest at all, then the low turnover of goods is not critical - the main thing is that the loan repayment period does not exceed the turnover rate. If the goods are taken mainly on the terms of sale, then first of all it is necessary to proceed from the volume storage facilities, and turnover for such a store is the last most important indicator.

Turnover and withdrawal

It is important not to confuse the two concepts - turnover and withdrawal.

TURNOVER is the number of turnovers of goods for the period.

LEAVING- an indicator that says how many days the goods leave the warehouse. If in the calculation we do not operate with an average TK, but calculate the turnover of one batch, then we are really talking about leaving.

Example

• On March 1, the warehouse received a batch of pencils in the amount of 1000 pieces
• On March 31, there are no pencils left in the warehouse (0)
• Sales are 1000 pieces

It seems that the turnover is 1, that is, this stock turned around once a month. But it is necessary to understand that in this case we are talking about one batch and the time of its implementation. One batch does not turn around in a month, it “leaves”.

If we calculate the average stock, it turns out that on average there were 500 pieces in stock per month.

1000/((1000 + 0)/2) = 2,

that is, it turns out that the turnover of the average stock (500 pieces) will be equal to two periods.

That is, if we brought two batches of pencils of 500 pieces, then each batch would be sold in 15 days. In this case, it is incorrect to calculate the turnover, because we are talking about one batch and does not take into account the period when the pencils were sold to zero balance - perhaps this happened in the middle of the month.

Batch accounting is not needed to calculate the inventory turnover ratio. There is an inflow of goods and an outflow of goods. Given a period (for example, 1 month), we can calculate the average inventory for the period and divide the sales volume by that.

Turnover rate

Very often you can hear the question: “What are the turnover rates? How is it right?

Turnover ratio does not have recommended values. There is only one pattern: the higher it is, the less time the goods are in the warehouse, the faster they turn into money.

But companies always have the concept of "RETURN RATE" and each company has its own.
RATE OF TURNOVER- this is the number of days (or turnovers) for which, in the opinion of the company's management, the stock of goods must be sold in order for the trade to be considered successful.

Each industry has its own standards. Some companies have various norms for different product groups. So, for example, our trade company used the following rates (turns per year):

• building chemistry - 24
• varnishes, paints - 12
• plumbing - 12
• facing panels - 10
• rolled floor coverings – 8
• ceramic tiles - 8

In one of the network supermarkets, the turnover rate for the non-food group is divided on the basis of ABC analysis: for goods A - 10 days, for goods of group B - 20 days, for C - 30. In this retail network, monthly turnover is included in the inventory indicator, and the commodity balance in the store is the sum of the turnover rate plus safety stock.

Also, some experts financial analysis use Western standards.

Example

Dobronravin E. in the article "The turnover ratio and the level of service - indicators of the effectiveness of inventory" writes:

“Typically, merchants of industrial goods in Western enterprises have a turnover ratio of 6 if the profitability is 20-30%.
If the profitability is 15%, the number of revolutions is approximately 8.
If the profitability is 40%, then a solid profit can be obtained with 3 turnovers per year.
However, as noted earlier, it does not follow that if 6 turns is good, then 8 or 10 turns is better. These data are indicative when planning general indicators.”

Henry Assel, in Marketing: Principles and Strategy, writes: "In order for businesses to operate at a profit, their inventory must turn 25 to 30 times a year." An interesting method for calculating the turnover rate is offered by Dobronravin E. He uses a Western development that takes into account many variable factors: the frequency with which goods are ordered, transportation time, delivery reliability, minimum dimensions order, the need to store certain volumes, etc.

What is the optimal number of inventory turnover that can be included in the plan of a particular enterprise? Charles Bodenstab analyzed a large number of companies using one of the SIC systems in inventory management. The results of the empirical study were summarized in the following formula:

f in the proposed formula - a coefficient that summarizes the effect of other factors affecting the theoretical number of revolutions. These factors are:

• the width of the assortment in storage, that is, the need to store slow-moving stocks for marketing purposes
• larger than required purchases in order to receive volume discounts
• requirements for a minimum purchase lot from a supplier
• supplier unreliability
• economic order quantity (EOQ) policy factors
• overstocking for the purpose of promotion (promotion of goods)
• use of delivery in two or more stages

If these factors are at the usual level, then the coefficient should be about 1.5. If one or more factors have an extreme level, then the coefficient takes the value 2.0.

Example

The store has factors (they are indicated in Table 6) applied to different suppliers.
You can give several examples of how the turnover rate will look like with the applied formula (see Table 7).

This means that if, on average, we import GOODS 3 twice a month (0.5) and we carry it for 1 month, while some factors (perhaps the supplier is unreliable) are not ideal, then the turnover rate can be considered 9.52. And for PRODUCT 5, which we rarely import (it takes a long time, and the influencing factors are very far from ideal), it is better to set a turnover rate of 1.67 and not demand too much from its sale.

But the practice of Western companies is very different from Russian conditions - too much depends on logistics, purchase volumes and delivery times, supplier reliability, market growth and demand for goods. If all suppliers are local and the turnover is high, then the coefficients can reach 30-40 turnovers per year. If supplies are intermittent, the supplier is unreliable and, as often happens, demand fluctuates, then for a similar product in a distant region of Russia, the turnover will be 10-12 turnovers per year, and this is normal

Turnover rates will be higher for small enterprises working for the end consumer, and much less for enterprises producing group A products (means of production) due to the length of the production cycle.

Again, there is a danger of rough compliance: for example, you do not fit into the turnover ratio and start to reduce the safety stock. As a result, there are gaps in the warehouse, there is a shortage of goods and unsatisfied demand. Or you start to reduce the size of the order - as a result, the costs of ordering, transporting and processing goods increase. Turnover increases, but availability problems remain.

The norm is a general indicator, and one should react and take action as soon as some negative trend is detected: for example, inventory growth outpaces sales growth, and at the same time as sales growth, inventory turnover has decreased.

Then you need to evaluate all marketable goods within the category (perhaps some individual items are purchased in excess) and make informed decisions: look for new suppliers that can provide shorter delivery times, or stimulate sales for this type of product, or give it a priority place in hall, or train sellers to advise buyers on this particular product, or replace it with another more well-known brand, etc.

Katerina Buzukova
Super Retail Project Consultant

Inventory turnover ratio is an efficiency ratio that shows how effectively inventory is being carried out by comparing the cost of goods sold with the average amount of inventory over a certain period. In other words, it measures how many times a company has sold in a year.

This ratio is important because the total turnover depends on two main components of activity. The first component is purchase of shares. If a company has large amounts of inventory acquired during the year, then it will have to sell large quantity goods to improve their turnover. If the company cannot sell more inventory, it will incur storage and other expenses.

The second component is sales. Sales must match inventory purchases, otherwise inventory will not be effective. This is why the purchasing and sales departments need to work closely with each other.

Definition

Inventory turnover is a value that determines how many times a company's inventory is sold and replaced over a given period of time. To find out how many days it takes to sell equipment, you need to divide the sales volume by the average inventory value.

Inventory turnover ratios depend on the company as well as development industries. Low-margin industries tend to have higher inventory turnover ratios as profit margins are offset by high sales forecasts.

For all these reasons, comparisons of inventory turnover ratios are usually most appropriate among firms within the same industry, and the definition of "high" or "low" ratio must be made in this context.

Inventory turnover measures how quickly a company sells products and typically compares this to industry averages. Low turnover suggests weak sales and therefore excess inventory. A high ratio suggests strong sales and/or big discounts.

The speed at which a company can sell is a key measure of business performance. It is also one of the components of the calculation of return on assets. As such, high turnover means nothing if the company is not making a profit on every sale.

Calculation and formula

The formula for calculating inventory turnover is as follows:

Kob.z. = TC / Mc.r., where

Kob.z.- inventory turnover ratio, TS– prime cost products sold, Mc.r. is the average annual value of stocks.

Inventory turnover is calculated as sales divided by average inventory. Average stocks are calculated as:

(quantity at the beginning of the inventory + ending stocks) / 2

Analysts divide the amount of average inventory instead of inventory sold for greater accuracy in the turnover calculation, since sales include a markup on cost.

As part of accounting this coefficient is calculated as follows:

Kob.z. = row 2110 / average of row 1210

In general, low inventory turnover indicates that the company has too much inventory, which may indicate bad management or low sales. Excess inventories tie up a company's cash and make the company vulnerable if market prices fall. And vice versa, high performance inventory turnover may indicate big sales and timely inventory.

High inventory turnover also means the company replenishes stock quickly Money. Exceptionally high inventory turnover may indicate that a company frequently makes inefficient purchases and therefore loses some sales.

It is important to understand that the timing of the purchase of inventory, especially the one made in preparation for special promotions, may slightly change the turnover.

Various accounting methods also affect the inventory turnover ratio. During periods of rising prices, using the LIFO method, the turnover indicates a higher cost of sales and low inventory than using the LIFO method.

In addition, companies using the LIFO method also have more stock than FIFO companies. The LIFO method increases the cost of production, which reduces profits and, in turn, reduces tax liabilities. The cost of goods sold is reflected in income.

The average inventory can be defined as follows:

TZav. = (ТЗ1 + ТЗ2 + ... + ТЗn) / n-1, where

TKn- the value of the inventory on certain dates of the analyzed period (rubles, dollars, etc.), n is the number of dates in the period.

Turnover in days:

Obdn \u003d (TZav * Number of days) / T, where

TZav- average inventory T- turnover for a given period or sales volume.

The turnover in times is determined using the following formulas:

Image = Number of days / Days

Image \u003d Turnover (T) / Average inventory (TZav)

Product inventory level:

Uz \u003d (Commodity stock at the end of the analyzed period (TK) * Number of days (D)) / Turnover for the period

The turnover rate is the expected number of turnovers of goods for a certain period of time. Defined as follows:

Turnover rate = 12 / (f * (OF + 0.2 *L)), where

OF is the average order frequency per month, L is the average delivery period in months, f is a coefficient generalizing the effect of other factors that may affect the turnover.

Analysis

Inventory turnover is a measure of how effectively a company can control the sale of its product.

falls, then

1. An increase in the amount of assets used is possible.
2. There may be a drop in sales.

If the turnover ratio growing, then

1. Capital turns around faster, each unit of inventory brings more profit.
2. It can be artificially high when switching to a leased OS.

The higher the inventory turnover of a company, the more efficient production is and the less the need for working capital for its organization.

The webinar on determining turnover is presented below.