Inventory Turns Method

[rmurrey@dantel.com]

Our CFO uses the last quarter of each year and annualizes the data for inventory turns. (i.e., 4th quater COGS divided by ending inventory) My concern is that since our sales varies significantly by quater this is not a true indication of our annual turns. Comments?

[Chuck Hartle]

Hi rmurrey,

You might consider this. Take your inventory cost for the quarter, divide that by three months, then multiply that by 12 to calculate your inventory investment annualized based on the quarter.

Then at least you can compare your cost of goods sold for the same investment during the exact same time period.

Chuck Hartle'

[Gary J. Naples]

Hi rmurrey,

Your concern about the length of time your CFO uses for the calculation is justified. A minimum of six months Cost of Sales is required to establish a valid basis for calculating turnover. A quarter is really not enough data.

Gary J. Naples

[RICHLOWE]

we use a rolling 12 month system that seems more fair. the peaks and valleys are somewhat smoothed out. however, to accurately find numbers, a agree that taking the quarter divided by three times twelve would be sufficient.