Operating profit is not included in the calculation of inventory turnover rate.

So the average inventory balance is divided by the operating cost, not the operating income.

Inventory turnover rate is the ratio of cost of goods sold to average inventory balance in a certain period. It is used to reflect the turnover speed of inventory, that is, whether the liquidity of inventory and the amount of inventory funds are reasonable, so as to ensure the continuity of production and operation, improve the efficiency of capital use and enhance the short-term solvency. Inventory turnover rate is one of the important indicators of operational capacity analysis, which is widely used in management decision-making. Inventory turnover rate can be used not only to measure the efficiency of inventory operation in all aspects of production and operation, but also to evaluate and reflect operating performance.

Inventory turnover rate is a supplementary explanation to current assets turnover rate. Through the calculation and analysis of inventory turnover rate, we can calculate the turnover rate of inventory assets in a certain period, which is a measure reflecting the balance efficiency of purchase, production and sales. The higher the inventory turnover rate, the stronger the liquidity of inventory assets, and the faster the turnover rate of inventory and inventory occupied funds.

Inventory turnover rate, also known as inventory turnover rate, is a comprehensive index to measure and evaluate the management status of purchasing inventory, putting into production and sales recovery. It is the ratio of the cost of goods sold divided by the average inventory, or inventory turnover times, and the inventory turnover rate expressed in time is the inventory turnover times. The calculation formula is as follows:

Inventory turnover (times) = cost of goods sold/average inventory balance (the other is inventory turnover (times) = operating income/average inventory balance, which is mainly used for profitability analysis).

In which: average inventory balance = (beginning inventory+ending inventory) ÷2,

Calculation formula of inventory turnover rate

Inventory turnover days = calculation period days/inventory turnover rate (times)

The quality of inventory turnover index reflects the level of inventory management and affects short-term solvency, which is an important content of the whole management. Generally speaking, the faster the turnover rate of inventory, the lower the occupancy level of inventory, the stronger the liquidity, and the faster the inventory can be converted into cash or accounts receivable. Therefore, improving inventory turnover can improve liquidity.