How To Calculate Inventory Turns
Inventory Turns is the number of times your inventory turns (is used or replaced with new product) during a given period (month, year, whatever you choose). Typically, the higher the turns the better because it indicates that product is purchased and used on an “as needed” basis and is not just sitting on the shelves. Typical industry standards for Inventory Turns in restaurants is 4 – 8 turns a month. The higher the ratio of fresh product to frozen/dry product you use the higher the number should be.
Inventory Turn Formula
The formula to calculate inventory turns is:
inventory used ÷ average inventory
First, calculate average inventory for the period. If you take a monthly inventory, this is the formula to calculate average inventory for the month:
beginning inventory + ending inventory ÷ 2
Next, calculate inventory used:
= beginning inventory + purchases – ending inventory
Lastly, calculate inventory turns:
inventory used ÷ average inventory
| Calculate Inventory Turns Example | ||
| Beginning Inventory | $3,490 | |
| Purchases | $22,873 | |
| Sub-Total | $26,363 | BI+P |
| Ending Inventory | $6,129 | |
| Inventory Used | $20,234 | ST-EI |
| Average Inventory | $4,809 | (BI + EI) ÷ 2 |
| Inventory Turns | 4.21 | IU ÷ AI |
Average Inventory = $4809.50 ($3490 + $6129) ÷ 2
Inventory Turns = 4.21 ($20,234 + $4809.50)
Inventory Change = +$2639 or +176%
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