Inventory turnover indicates the ratio of materials consumed to the average inventory held. It is calculated as below:
Value of Material Consumed
Average inventory held
Where value of material consumed can be calculated as:
Opening stock + purchases- closing stock. Average inventory held can be calculated as:
Opening stock + closing stock
Inventory turnover can be indicated in terms of number of days in which average inventory is consumed. It can be done by dividing 365 days (a year) by inventory turnover ratio.