Inventory turnover formula according to the balance sheet. Inventory turnaround time

Indicator unit:

Explanation of the essence of the indicator of the period of one turnover of stocks

The period of one turnover of stocks (the English equivalent is Days’ Sales in Inventory, Inventory Turnover in Days) is an indicator of business activity that indicates the effectiveness of a company’s inventory management. The coefficient is calculated as the ratio of the product of the number of days in a year by the average annual amount of stocks to the amount of cost. The value of the indicator indicates how many days the inventory is stored in the company's warehouse.

Normative value of the period of one turnover of stocks:

A decrease in value over the study period is a positive trend. It suggests that less funds are diverted to the formation of stocks. To determine the effectiveness of the company in this area, it is advisable to compare the indicator with the values ​​of competitors.

A financial institution offers the following standard indicators, depending on the field of activity of the company:

Table 1. Normative value of the indicator by field of activity, days

Source: Vasina N.V. Modeling the financial condition of agricultural organizations in assessing their creditworthiness: Monograph. Omsk: Publishing house of NOU VPO OmGA, 2012. p. 49.

In general, the rule is that the lower the period of one turnover of stocks, the more effective is the control over the process of formation and use of stocks.

It is worth remembering that the value of the indicator may be too low. In this case, the production or marketing process may be paralyzed. Therefore, inventory management policy should take into account seasonal fluctuations, changing customer tastes, industry and production process features, possible unforeseen situations during delivery, and other factors.

Directions for solving the problem of finding an indicator outside the normative limits

If the value of the indicator deviates from the standard, it is necessary to optimize the structure of reserves. To do this, you can use methods such as ABC analysis, XYZ analysis and others. Reducing inventories will reduce the amount of financial resources required, which will reduce financial costs or increase company revenues by investing money in intensifying activities.

The formula for calculating the period of one inventory turnover:

Period of one turnover of stocks = (360*Average annual amount of stocks) / Cost price (1)

Period of one inventory turnover = 360 / Inventory turnover (2)

Average annual inventory (best practice) = Sum of inventory at the end of each business day / Number of business days (3)

Average annual inventory (when only weekly data is available) = Sum of inventory at the end of each week / 51 (4)

Average annual inventory (when only monthly data is available) = Sum of inventory at the end of each month / 12 (5)

Average annual inventory (when only quarterly data is available) = Sum of inventory at the end of each quarter / 4 (6)

Average annual inventory (when only annual data is available) = (Inventory at the beginning of the year + inventory at the end of the year) / 2 (7)

Monthly, weekly, and daily inventory estimates are available for internal analysis, but not for external analysis. Quarterly figures may be available for external analysis.

Notes and corrections:

1. During the year, the value of the indicator may fluctuate (for example, due to the seasonal factor). At the end of the period, the company's business activity decreases, the volume of inventories, work in progress and the finished goods inventory will be lower, so the period of one turnover of inventory may be overestimated. If a company prepares financial statements at the peak of its business activity, then the inventory turnover may be overestimated, and the period of one inventory turnover may be underestimated. To determine the exact value of the indicator, one of the formulas 3-6 must be used.

An example of calculating the period of one inventory turnover:

JSC "Web-Innovation-plus"

Unit of measurement: thousand rubles

Period of one inventory turnover (2016) = (360*(87/2+88/2))/405 = 77.78 days

Period of one inventory turnover (2015) = (360*(88/2+75/2))/487 = 60.25 days

The effectiveness of inventory management is declining at Web-Innovation-plus OJSC. This is evidenced by a significant increase in the period of one turnover of stocks - from 60.25 days in 2015 to 77.78 days in 2016. The reason for this trend is a decrease in production and sales, while the standards for the formation of stocks remained at the previous level. It is necessary to revise them and work towards increasing inventory turnover and reducing the period of one inventory turnover.

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 turnover of stocks.

Calculation of inventory turnover ratio

There are two options for calculating this indicator:

• at cost of sales;
• by sales revenue.

In the first variant, when determining inventory turnover, the numerator reflects the cost of sales, and the average value of 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".

The calculation of the average cost of inventories according to the balance sheet is as follows:

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 of the enterprise, a decrease - overstocking or a 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.

So, let's consider all the aspects - theoretical and practical, that we need when working with the turnover of goods.

What is turnover

There are many versions - this is “how quickly the goods are sold”, and “how many days we sell the stock”, “sales speed” ... Indeed, approximately everything is true. But the exact definition of turnover is still this: it is the ratio of the speed of sales to the average inventory for the period. That is, to put it simply, this is how long we sell the average stock in our warehouse. How quickly we get the money that we invested.

The higher the turnover, the better. This is undeniably so. This means that our money will return to us faster. However, we must remember that if we sell our inventory too quickly, we risk running out of stock. Large reserves take away our working capital, and the company cannot develop. Small stocks force us to balance on the brink of shortage - and we lose customers, we are forced to import goods every day and spend our money on logistics.

What's better?

This is a strategic issue, each company decides it independently. Extremes are not helpful at all. Therefore, each company sets acceptable turnover rates for itself. Turnover is individual! This is the first.

Second. To calculate turnover, you need to have THREE parameters:

1. Average (average!!!) commodity stock for the period. That is, how many goods we have in stock, for example, per month. Do not confuse with stocks for "today"! But this will be discussed below.

2. Period. It could be a week, a month, a year. Usually a month is the most used period. However, for perishable goods (bread, milk), the period may be equal to a week. Annual turnover can be considered by the owner, manager, who evaluates the efficiency of the company as a whole. However, for tactical inventory management, it is usually worth using the month.

3. Turnover for the period. That is, the sales themselves for the same month (or week, or year). Important: we calculate the stock and sales of the SAME product (that is, you can’t take all the stocks of the “alcohol” group and compare them with sales of the “vodka” category)

What is important to consider when dealing with turnover are four important things:

turnover is considered only where there is inventory. No stocks - no turnover (for example, a hairdresser sells services - a haircut, a manicure ... There are no stocks in stock for these services).

only those goods that are physically present in your warehouse, those that are credited, are taken into account. If there is a product, but it has not been credited or has already been written off, it is not considered. If the product has already been bought by you and is on its way to you, but has not yet arrived (the product is on its way) - it is also not considered (for the simple reason that it theoretically may not reach ... or reach, but not in that form ... in short, this already logistics, and we all know that nothing can be assumed with it in advance). A product that you have already sold, but it has not yet been shipped to the client (for example, a wholesale and retail company that sells goods in batches, receives an advance payment) cannot be counted either. It's already sold, it's turned around, so it doesn't count (unless you have the courage to sell it twice)...

turnover is considered in units of goods (for example, in pieces) or in monetary terms (for example, in rubles). In what you want, in that and consider - it does not matter, the essence of this will not change. It is important that you consider both the stock and the turnover in the same quantities. If you count in monetary units, then you need to count in purchase prices (both stocks and sales). Not in retail, namely in purchasing - retail prices change more often, purchase prices are usually more stable. However, if your company's purchase prices also fluctuate greatly, then count the pieces.

turnover is needed in dynamics! By itself, taken out of context, it says nothing. Well, we have a turnover of 30 days ... And what? Is it good or bad? Now, if it was 15 days, and it became 30, this is a negative trend and measures must be taken. And if it was 60 days, and became 30, then everything is fine, and you can move on in the same direction.

In the future, when we say “turnover” and “turnover ratio”, we will mean the same thing - this is the number of revolutions in times or days of the average commodity balance for a certain reporting period. Turnover can be calculated in days, in times, in pieces, in money, in a month or a year, by commodity items, by categories, by brands, by suppliers, by stores ... The question is what do you want to see .

If you need to evaluate the overall work and compare stores with each other, then you should take the annual turnover in rubles. If the question is what products should we withdraw from the assortment (who is the weak link?), then it is worth comparing commodity items within the same category (for example, Domik v derevne milk, 3.2% fat, and Parmalat milk, 3, 2% fat) in pieces per week. So, let's deal with everything in order.

Average inventory

Very often, when calculating turnover, confusion arises here. Many people believe:

a) not an average stock, but a stock for “today”. This is the level of inventory, and this method shows not the turnover, but how many days are left until the end of sales, that is, "how many cartridges will last." It can also be considered, but this is a different parameter that does not reflect the dynamics.

b) average stock, but wrong. Take the first day of the period and the last day, and divide in half. This is incorrect, as it does not reflect the dynamics of stocks throughout the month.

For example, this figure shows how the number of goods in stock changed over the month. If we use the "pre-computer" formula, then the average inventory will be equal to (10,000 + 10,000) / 2 = 10,000 pieces. But this is not true, because during the month there were situations of both shortages and overstocking of the warehouse. If calculated using the correct formula, then the average inventory will be at the level of 7,500 pieces (see example 1 below).

The correct formula for calculating average inventory is:

ТЗav = ТЗ1 /2 + ТЗ2 + ТЗ3 + ТЗ4 + … ТЗn /2

ТЗ1, ТЗ2, ... ТЗn - the value of the inventory on certain dates of the analyzed period,

n is the number of dates in the period.

So, the turnover is calculated in days or in times. Let's consider both options.

1. Turnover in days shows how many days it takes to sell an average inventory. It is calculated by the formula:

About days = Average inventory * number of days / Turnover for this period

For example, the average stock of Tide washing powder for the month was 155 pieces. Sales of the same powder for the month amounted to 325 pieces.

The turnover will be: 155 pcs * 31 days / 325 pcs = 14.78 (15) days.

It takes 15 days to sell an average stock of this powder.

What is the conclusion for us? So far, none - you need to look at this indicator in dynamics. Now, if last month the turnover was 10 days, and became 15, then this is a signal that it is necessary to either reduce the amount of imported goods or increase sales (or you can do both at the same time). And if, on the contrary, it was 20, and it became 15, it means that the goods began to turn around faster, and this is good.

Another important criterion: the ratio of turnover in days and the credit line for this product. If the loan received from the supplier of this powder is equal to 30 days, then the situation is more or less favorable: we return our invested money after 15 days, and the repayment period occurs after 30. That is, we can use the money received for two weeks.

But if the loan is 10 days, then the turnover of 15 days tells us that we will have to use borrowed money to repay the loan, because we have not yet wrapped the goods, the money for it has not been received.

Turnover in days should never exceed the term of the loan!

Another conclusion that can be drawn on the basis of turnover data. If the turnover is 15 days, this means that the stock must be replenished every 2 weeks (if you want to maintain some kind of safety stock). The turnaround time is correlated with the frequency of deliveries.

2. Turnover in times tells how many times a product is in a period"turned around", sold out. Calculated according to the formulas:

About time \u003d Turnover for the period / Average inventory for the period

For example, the average stock of Tide washing powder for the month was 155 pieces. Sales of the same powder for the month amounted to 325 pieces. The turnover will be: 325 pcs / 155 pcs = 2 times a month.

The average stock will be sold 2 times a month.

What is the conclusion? 2 times a month is the same as 15 days of turnover, so there is no fundamental difference in the calculation method. The same conclusions can be drawn. But in my opinion, the calculation of turnover in days is more convenient. In the future, here we will talk about turnover in days.

Not turnover

1. Consider what is not turnover, but is used in practice.

This is the level of stocks of products (Utz) - an indicator that characterizes the supply of the store with stocks on a certain date. It shows how many days of trade (with the current turnover) this stock will last.

Utz \u003d Inventory at the end of the analyzed period * number of days / Turnover for the period

For example, on July 15, there were 243 pieces of Tide powder left in the warehouse. For two weeks of July (from the 1st to the 15th) sales amounted to 430 pieces.

Utz \u003d 243 pcs * 15 / 430 pcs \u003d 8.4 days.

Available stocks will last for 8.4 days. This means that after 8 days you need to replenish the stock.

2. Another indicator that is confused with turnover is exit.

Turnover - how many revolutions the product makes in a period. Exit - in how many days something will leave the warehouse.

If in the calculation we do not operate with an average stock, but calculate the turnover of one batch, then we are really talking about withdrawal.

For example, on March 1, a batch of 1000 pencils arrived at the warehouse. On March 31st there are 0 pencils left in stock. 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".

Batch accounting is not needed to calculate inventory turnover.

3. In some works, yield is called the return per square meter of retail space.

This is also an important indicator, which is calculated by the formula:

Exit = turnover per month / Occupied space (m2)

Example 3. Comparison of indicators within the category "Laundry detergent"

It can be seen from the table that B-Max, despite its poor turnover (27 days), has the best sales per m2. It can be concluded that too large a batch of goods was purchased. By reducing the stock, we will even out the turnover.

But Tide's turnover is good, and sales per m2 are the worst among the entire category. We conclude that the shelf space is used inefficiently or the goods are located in the “cold” zone of the trading floor. It is necessary to raise sales in general or reduce the occupied area.

Powder "Ariel" with not very good turnover shows acceptable leaving. Here you can also talk about reducing the stock.

What is the general conclusion? The level of inventory and turnover (or return per square meter) must also be considered, but they have little to do with turnover itself.

And one more conclusion - there is no single terminology in what we call performance indicators of a trading enterprise. Therefore, when meeting with any definitions in books, at seminars, with colleagues or partners, be sure to clarify what exactly is meant by this or that term.

Turnover rate

The same question is almost always asked: “What are the turnover rates? How is it right? No answer. Every company has its own rules.

The turnover rate is the number of days or turnovers for which the stock of goods must be sold, according to the management of the company, so that trading can be considered successful.

Each industry has its own standards. Each region has its own rules. Each supplier has its own rules. Each type or category of goods has its own rules.

For example, a stationery and toy store in Sakhalin has an average turnover of 90 days (which is still good)! For the same store selling the same thing, but in Moscow, this figure seems unacceptable.

But the fact is that the delivery of goods to Sakhalin is extremely difficult and long, and the company is forced to have significant stocks to maintain turnover. Such is the price of business... But the trade margin in Sakhalin, where there are practically no competitors, is at least 150%, which seems like an unrealizable dream for Moscow. This, excuse me, is the price of doing business in Moscow…

There is only one pattern: the higher the turnover, the less time the goods are in the warehouse, the faster they turn into money.

But it is important to remember that if the turnover is too high - say, approaching 1-2 days - this indicates that the supply of goods must be carried out daily and the store is operating with little or no safety stock. At the slightest failure in supply or in an increase in demand for goods, we risk being left without goods! A shortage for a retail enterprise is dangerous not only by lost profits, but also by the fact that the existing demand for the product will be satisfied by a competitor ... And yet - daily deliveries are always problems with logistics. Acceptance, calculation, posting of goods - each operation is fraught with the possibility of errors and losses. The more often, the more errors.

In the case of perishable goods (bread, milk), this situation cannot be avoided. But for other goods, it is more reasonable not to lead the turnover to 1-2 days, but to work out for yourself the optimal period that minimizes risks and losses. This will be the turnover rate for a particular product.

Remember: what is the norm for one product will not be the norm for another! You can not try to find a single norm for batteries and plasma TVs - these products have nothing in common. If you compare goods by turnover, then this can be done only among goods in the same category and comparable to each other. There is no need to compare bread with cookies. Beer and vodka too. But the cookies of one factory can be compared with the cookies of another factory - this can be done.

Analysis of the results of the turnover measurement

When comparing, you can build a "Turnover-Margin" matrix and see which products bring us more profit over the same period, and which ones less.

For example, we want to analyze data for one category and find out which products in the category are most interesting to us, and which are less.

Table 4. Comparative data on margin and turnover

As you can see, although product 5 has an average trade margin, it has the best turnover of all and brings the greatest profit per month per unit of production. And product 1, which has a high margin, shows the worst turnover. Therefore, monthly profit per unit of output is minimal. What can be done? It is necessary to find out what caused such poor turnover - excess inventory or poor sales? After that, take action. If the problem is in sales, then stimulate turnover. If the problem is in excess stock, then you need to stop importing goods in huge quantities.

Matrix "Turnover-Margin"

By correlating two parameters - margin (or trade margin) and turnover, it is possible to distribute goods within one category according to this matrix.

As you can see, the most interesting for us are goods that have a high turnover and a high margin. The assortment may also contain goods with a low turnover, but this should be compensated by a high margin. Goods with a low margin may be in stock, provided. That they have a good turnover, that is, the company does not spend money on the sale of these goods. Goods with a low margin and poor turnover should not be in the assortment.

If such goods are present in the matrix, then we can do the following:

take them out of stock. However, "mechanical cleaning" is dangerous in that we can "throw away" both new goods and related goods, components or image goods along with illiquid assets. Therefore, before we “throw out” someone, we need to analyze the history of this product and understand its role in the general assortment.

convert them into the "high markup - low turnover" square. You need to understand what kind of product that is slowly selling. Perhaps this is an expensive fashion product, and we simply positioned it incorrectly and are not making a profit. move it into the “low markup-high turnover” quadrant, stimulating sales or reducing inventory. After all, we have two pedals: “gas” (speed of sales) and “brake” (stock reduction). Unlike a car, can we press both pedals at once?

Sometimes it happens that we have to put up with the fact that for some goods we have poor turnover and this is not a mistake of the purchaser or sales. These are conditions that cannot be adjusted.

Usually this is due to the terms of delivery - for example, the supplier goes on vacation (closes the plant for maintenance for two months) and in order to provide the company with stocks, you have to purchase two to three months' stock. Or the delivery of goods takes so long (for example, a container by sea from China) that in order to ensure uninterrupted supply, it is necessary to purchase goods in large quantities. In this case, you need to understand that this is the price of a business ... In this case, you need to try to compensate for your expenses for maintaining stocks with loans from suppliers.

I like

Turnover - basic principles

One of the main indicators of the efficiency of the logistics system in many companies is inventory turnover.
Each company develops its own individual approach to the turnover calculation, however, in most cases, the purpose of the calculation remains the same: to understand how quickly the average stock in the warehouse is sold (in the warehouse system, in the distribution chain); how quickly we get the money we invested.
There is an exact turnover determination: This is the ratio of the speed of sales to the average inventory for the period.

Large reserves freeze capital and the company cannot develop.
Therefore, the conclusion suggests itself: the higher the turnover, the better.
However, when striving for high turnover, we must not forget that reducing the stock increases the risk of shortages and reduces the level of service for the company's customers.
Therefore, it is important to find the optimal ratio that will allow you to effectively use your stock and provide customers with a given degree of reliability.

To calculate turnover, you need to have THREE parameters:

1. Period. It can be a week, a month, a quarter, a year.
2. Average inventory for the period.
3. turnover for the period.

In order to draw a conclusion about the effectiveness of inventory turnover, it is best to:

Establish a certain turnover ratio acceptable for the achievement of the Company's strategic goals and evaluate its implementation;
to observe the change in turnover from period to period - that is, to see it in dynamics.

If the Company has a credit system for settlements with suppliers (deferred payment for goods), then one of the important criteria for assessing the effectiveness of turnover can be turnover to line of credit ratio for this product. If the term of the loan received for the goods is longer than the turnover (estimated turnover in days), then the situation is more or less favorable: we return our invested money faster than the due date for payment for the goods. Ideally, the turnover in days should not exceed the term of the loan.

Average inventory

Very often, when calculating turnover, confusion arises here. Many people believe
a) not an average stock, but a stock for “today”. This is the level of inventory, and this method shows not the turnover, but how many days are left until the end of sales, that is, "how many cartridges will last." It can also be considered, but this is a different parameter that does not reflect the dynamics.
b) average stock, but wrong. Take the first day of the period and the last day, and divide in half. This is incorrect, as it does not reflect the dynamics of stocks throughout the month.

For example, this figure shows how the quantity of goods in the warehouse changed over the month - during this period there were situations of both shortage and overstocking of the warehouse.

If the measurement points are located at regular intervals, the formula can be used to calculate the average inventory

TK cf i - half the sum of two adjacent measurements of inventory values;
ti is the time interval between two adjacent measurements.

Note: Whether to take into account the days of the absence of goods in the warehouse when calculating the average is a moot point. Each company makes an individual decision on this issue. There is an opinion that the exclusion of zero balances from the calculation makes the assessment of turnover more accurate in terms of obtaining information about how many times during the period it was possible to wrap the funds invested in the goods, but, of course, also the following - the exclusion of zero balances complicates the system for setting the turnover ratio and analysis its implementation.

Formulas for calculating turnover

Turnover is calculated in days or times.

1. Turnover in days shows how many days it takes to sell an average inventory. It is calculated by the formula:

2. Turnover in times says how many times during the period the product "turned around", sold. Calculated according to the formulas:

Turnover rate

Turnover rate- this is the number of days or turnovers for which the stock of goods must be sold, taking into account the strategic goals of the company.
Each industry has its own standards. Each region has its own rules. Each supplier has its own rules. Each type or category of goods has its own rules.

Analysis of the results of the turnover measurement

When comparing, you can build a "Turnover-Margin" matrix and see which products bring us more profit over the same period, and which ones less.

Comparative Margin and Turnover Data

As you can see, although product 5 has an average trade margin, it has the best turnover of all and brings the greatest profit per month per unit of production. And product 1, which has a high margin, shows the worst turnover. Therefore, monthly profit per unit of output is minimal. What can be done? It is necessary to find out what caused such poor turnover - excess inventory or poor sales? After that, take action. If the problem is in sales, then stimulate turnover. If the problem is in excess stock, then you need to stop importing goods in huge quantities.

Matrix "Turnover-Margin"

By correlating two parameters - margin (or trade margin) and turnover, it is possible to distribute goods within the same category according to this matrix.

As you can see, the most interesting for us are goods that have a high turnover and a high margin. The assortment may also contain goods with a low turnover, but this should be compensated by a high margin. Goods with a low margin may be in stock, provided. That they have a good turnover, that is, the company does not spend money on the sale of these goods. Goods with a low margin and poor turnover should not be in the assortment.

If such goods are present in the matrix, then we can do the following:

Take them out of stock. However, “mechanical cleaning” is dangerous because, together with illiquid assets, we can “throw out” both a new product and an accompanying, component or fashion product. Therefore, before we “throw out” someone, we need to analyze the history of this product and understand its role in the general assortment.
translate them into the "high margin - low turnover" square. You need to understand what kind of product that is slowly selling. Perhaps this is an expensive fashion product, and we simply positioned it incorrectly and are not making a profit.
move it into the "low markup - high turnover" square, stimulating sales or reducing the amount of stock.

Sometimes it happens that we have to put up with the fact that for some goods we have poor turnover and this is not a mistake of the purchaser or sales. These are conditions that cannot be adjusted. Usually this is due to the terms of delivery - for example, the supplier goes on vacation (closes the plant for maintenance for two months) and in order to provide the company with stocks, you have to purchase two to three months' stock. Or the delivery of goods takes so long (for example, a container by sea from China) that in order to ensure uninterrupted supply, it is necessary to purchase goods in large quantities. You need to understand that this is the price of a business ...

Notes

The article was prepared using the materials of the article of the assortment management consultant Buzukova E.A. "Simple and familiar turnover"

The collection is intended for specialists of trading companies who want to effectively manage the directions of the company. That is, to create profitable product categories that allow the company to develop, and not exist!

Inventory turnover can be displayed both in days and in turnover for a certain period. The person who manages the inventory should be interested in how quickly he will sell the goods that he brought to the company's warehouse. If we talk about turnover in days, then it means how many days I will sell the goods during the year. If we talk about turnover in times, then this means how many times a year the warehouse that I brought will be sold out. It is generally believed that the faster the warehouse turns around, the better for the company. But more on that later. Now let's look at the inventory turnover formulas:

1. The formula for inventory turnover in times per year - monetary terms

k turnover= (Sales amount for 1 month - Gross profit for 1 month) / (cost of inventory at the beginning of 1 month + cost of inventory at the end of 1 month) / 2 * 12 months =

This formula uses sales and the calculation of the average cost of a warehouse for 1 month. This formula is often useful when planning and analyzing the turnover for a certain group of goods per month. Typically, this indicator is used on, which analyzes the implementation of the set targets, one of which is inventory turnover. For the convenience of perceiving the calculated result, the turnover is reduced to an annual expression by multiplying the result by 12 months. Usually, it is easier to perceive the result of turnover in annual terms than in monthly terms. Annualized inventory turnover tells us how many times a year a company will wrap inventory if sales and inventory levels are at the same level as in the month being analyzed. If you wish not to convert the turnover to an annualized expression, then you simply need to remove the multiplier " 12 months» from the formula.

2. The formula for inventory turnover in times per year - natural expression

k turnover\u003d quantity of goods sold for 1 month in pieces / (availability of goods at the beginning of 1 month in pieces + availability of goods at the end of 1 month in pieces) / 2 * 12 months. = number of sold pieces of goods for 1 month / average availability of goods in the company's warehouse for 1 month * 12 months.

As you can see, in this formula natural values ​​are used in the calculation of turnover, namely, pieces of a certain product. Other units of measurement may also be used. As in the previous formula, the result is also reduced to an annual expression. The peculiarity of this formula is that this formula cannot be applied to the calculation of turnover for a group of goods. Why? It's simple, goods of different cost can belong to the same group of goods. For example, the product group "tool". It can contain both a set of tools and screwdrivers by the piece. And if you calculate the turnover of a group of goods in which a large number of screwdrivers are sold and not so many tool sets, then the turnover indicator will be distorted. As a conclusion, this formula can be used exclusively for a single item of a certain product, and not for a group of products.

3. Inventory turnover formula in days during the year - monetary expression

=365 days / (cost of sales for 1 month / average cost of a warehouse for 1 month. * 12 months) = 365 days / k turnover in times

As you can see, this formula consists of a numerator and a denominator. The numerator contains the number 365 (i.e. 365 days a year), the denominators contain the inventory turnover formula in times, which we derived in formula 1 above. That is, to determine how many days you will sell your warehouse, you need to divide 365 days of the year by the turnover ratio.

4. The formula for inventory turnover in days during the year - natural expression

Inventory turnover in days\u003d 365 days / (number of sold pieces of goods for 1 month / average availability of goods in the company's warehouse for 1 month * 12 months) \u003d 365 days / k turnover in times

Like formula 2, which we discussed above, formula 4 can also be used exclusively to calculate inventory turnover for an individual product, and not a group of products.

Calculation examples:

• Sales for January 2013 for the group of goods "Tools" - 20,000 c.u.
• Gross profit for January 2013 for the group of goods "tool" - 5,000 c.u.
• The cost of the warehouse at the beginning of January 2013 for the group of goods "Tools" is 86,500 USD.
• The cost of the warehouse at the end of January 2013 for the group of goods "tool" is 73,400 USD.

Turnover calculation. Basis - monetary expressions

1. k inventory turnover in January (NOT in annual terms) = (20,000 cu - 5,000 cu) / (86,500 u.e. + 73,400 u.e.) / 2 = 15,000 cu / 79 950 c.u. = 0.188 times a month
2. k inventory turnover in January (in annual terms) = (20,000 cu - 5,000 cu) / (86,500 u.e. + 73,400 u.e.) / 2 * 12 months = 15,000 cu / 79 950 c.u. * 12 months = 2.25 times a year
3. inventory turnover in days (annualized) = 365 days / 2.25 times a year = 162.2 days

Why do you need to calculate turnover?

It is worth saying that the turnover indicator itself is important in conjunction with the margin (profitability of the company's sales). Inventory turnover and margins ultimately affect the profitability of a company's inventory investment. You can read about the relationship between inventory turnover and return on sales in the article "".

A few words should be said about the calculation of the turnover ratio. The following formula for calculating the turnover ratio is common on the Internet:

OF - average order frequency in months (time interval between placing orders with a supplier);
L is the average delivery period in months (the time between placing an order and receiving the goods);
f is a coefficient that summarizes the effect of other factors affecting the theoretical number of revolutions. These are, in particular:

• the width of the assortment in storage, i.e. the need to store slow-moving stocks (usually for marketing purposes);
• larger than required purchases to receive volume discounts;
• supplier's requirements for the minimum purchase lot;
• supplier unreliability;
• economic order quantity (EOQ) policy factors;
• overstocking in order to promote goods;
• use of delivery in two or more stages.

It is worth saying that the proposed formula for me personally seems of little use precisely because of the f component, which should reflect the influence of other factors. I, in turn, propose to determine the turnover rate, based on the output of which we know what level of running positions the company's warehouse has, what the cost of inventory is overpriced, how much money is frozen in the company. Knowing these characteristics of your inventory and understanding your goals for these components, you can determine the desired target stock level for your company that it will achieve when selling the share of illiquid positions and increasing the availability of hot goods to the desired level. Also, do not forget about the leaders of the market in which your company operates. Find out what turnover rates these companies have, what level of margin they have, and how this all affects the profitability of investments in the inventory they have invested. However, when analyzing market leading competitors, do not rush to draw conclusions based on two criteria (margin and turnover), since each company may have its own specific business aspects that can allow them to successfully exist with relatively low analyzed indicators.

P.S. The above formulas and calculations are used to calculate the inventory turnover according to the company's monthly statistics. If you need to calculate inventory turnover and you have annual company statistics, then use the following formula:

k turnover= cost of sales in c.u. per year / average monthly cost of inventory in c.u. during a year,

• cost of sales in c.u. in a year= amount of sales in c.u. per year — gross profit in c.u. in a year,
• average monthly cost of inventory in c.u. during a year= (the cost of the warehouse at the beginning of January in USD + the cost of the warehouse at the beginning of February in USD + ... + the cost of the warehouse at the beginning of December in USD) / 12 months