Your inventory turns should be about four (4) per year. To calculate, take your beginning and ending inventory amounts at an annual period. Then divide it by two to get your “average” inventory amount.

Then, divide your total sales for that annual period by the average inventory, and there you have it.

For example, if you have inventory at the beginning of the year of $40,000 and your inventory at the end of the year is $60,000 then your “average” inventory amount is $50,000. Then, look at your profit and loss statement and see what your annual merchandise sales were for that period.

If the sale of merchandise was $200,000, then divide that by $50,000 (your average inventory amount) and you have four (4) inventory turns per year. Inventory turns greater than this can be something to hang your hat on, but if you turn less than three (3) times per year, more attention needs to be given to this profit center.

Hint: The Rentadvisors advocate using a “snapshot approach” monthly and instead of using the average merchandise inventory calculation, take a look at your current inventory level and divide your twelve month sales at that time by the actual merchandise on hand. This will give you a true picture of where you currently stand on resale inventory turns.