Inventory Turnover

Inventory Turnover measures the number of times inventory is converted to sales during a year. It is measured by ratios expressed in either turnover or days. The target is to minimize investment in inventory while maximizing sales. The data needed for this analysis is reported on the company Income Statement and Balance Sheet.

Cost of Goods Sold:

Purchases for resale adjusted for change in inventory from Income Statement


Average Inventory Value:

Sum of year beginning inventory and year ending inventory divided by 2. From Balance Sheet.


Inventory Turnover Annual:

The number of times inventory is used during the year.


Inventory Turnover Days:

The average number of sales days of inventory on hand.


How does your pharmacy compare?

Median Inventory Turnover as reported in the 2013 NCPA Digest is:

* 11.1 times annually or
* 33 days of inventory on hand

Too little inventory results in an unacceptable number of out of stocks. Too much inventory needlessly ties up cash. Decreasing your inventory on hand will increase the annual turn and decrease the number of days of inventory on hand and will improve cash flow by freeing up dollars tied up in inventory.