Comparing revenue with inventory cost mixes measurement bases and inflates the apparent turnover.
Try this with your own numbersFormula and worked example
Turnover = period cost of goods / average inventory
| Input | Example |
|---|---|
| Cost of goods used or sold in period | 120,000 |
| Average inventory at cost | 20,000 |
| Calculated result | 6 turns per period |
Choose reliable inputs
Plan materials, travel and crew time before committing to a price. For this asphalt contractor calculation, use a completed job sheet, supplier quotes and a crew schedule and a consistent definition of one paving job.
- Material delivery: include the portion belonging to this paving job or reporting period, and record where the value came from.
- Equipment: include the portion belonging to this paving job or reporting period, and record where the value came from.
- Preparation: include the portion belonging to this paving job or reporting period, and record where the value came from.
Use the same currency for every money input. Do not mix weekly costs with monthly revenue, or count the same expense in both an itemised cost and allocated overhead.
Why should inventory turnover use cost of goods?
Comparing revenue with inventory cost mixes measurement bases and inflates the apparent turnover.
Use cost on both numerator and denominator, not sales revenue against inventory cost.
What if this input changes?
If cost of goods used or sold in period rises by 10%, this example changes by 0.6 turns per period. This shows the effect of one change; it does not predict what will happen.
Open the calculator, save your baseline, then change the input supported by the least reliable estimate in your records. Compare both scenarios before committing to a price or capacity promise.