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Chapter 18

5.3 Inventory turnover

Inventory turnover calculates how many times the year-end level of inventory has
been turned over, or sold, during the year.

Inventory turnover is calculated as follows:

Cost of sales
Inventory = times p.a.

Another way of expressing this is to calculate the average inventory holding period:
this is a measure of how many days it takes to sell the inventory and is calculated as
follows:

Inventory
Cost of sales × 365 days

Tutor notes guidance – discussion points

Discuss with students possible explanations for changes in inventory turnover
and inventory days.

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