Determining sales turnover using your company's financial statements is an easy ratio to calculate by directly measuring inventory turnover ratio; it consists of using your balance sheet and income statement to assess inventory and cost of goods sold, often referred to as cost of revenue. Figuring the average yearly inventory takes a secondary calculation and only uses past inventory data.
Locate inventory on your company's balance sheet. To measure your average yearly inventory, you must take the beginning year's inventory and add it to the end of year inventory. A simple division by two will net you the average inventory held throughout the year.
Pull up your income statement and find the cost of goods sold, or revenue. To get the inventory turnover ratio, divide cost of goods sold by the average yearly inventory.
Bring the entire picture together by dividing the inventory turnover ratio by 12. The answer will reveal, on average, how many months inventory is kept around.
Things You Will Need
Balance sheet
Income statement
Tip
A low turnover ratio can be a sign that products are not moving off the shelves, or money is tied up in illiquid inventory. A high turnover ratio means quick turnaround and high sales, but it can also indicate a problem of not having enough supplies to be sold. Always use financial ratios in correspondence with other ratios to paint an accurate portrayal of a company's health.
