Enter the Cost of Goods Sold (COGS) and the Average Inventory into the calculator to determine the Inventory Ratio. This ratio helps businesses understand how efficiently they are managing their inventory.
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Inventory Ratio Formula
The following formula is used to calculate the Inventory Ratio:
IR = COGS / AI
Variables:
- IR is the Inventory Ratio
- COGS is the Cost of Goods Sold
- AI is the Average Inventory
To calculate the Inventory Ratio, divide the Cost of Goods Sold (COGS) by the Average Inventory (AI).
What is an Inventory Ratio?
An Inventory Ratio is a financial metric that measures the number of times a company’s inventory is sold and replaced over a period. A higher ratio indicates that the company is selling goods quickly and efficiently, while a lower ratio may suggest overstocking or issues with the product.
How to Calculate Inventory Ratio?
The following steps outline how to calculate the Inventory Ratio:
- First, determine the Cost of Goods Sold (COGS).
- Next, determine the Average Inventory (AI).
- Use the formula IR = COGS / AI.
- Finally, calculate the Inventory Ratio (IR).
- After inserting the variables and calculating the result, check your answer with the calculator above.
Example Problem:
Use the following variables as an example problem to test your knowledge.
Cost of Goods Sold (COGS) = $50,000
Average Inventory (AI) = $10,000
