Average Inventory is a simple calculation that estimates the typical amount of inventory you had on hand over a specific time period. It’s used to smooth out fluctuations and is essential for metrics like inventory turnover and GMROI.
Formula
Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2Example:
If your store started the year with $20,000 in inventory and ended with $10,000:
Average Inventory = ($20,000 + $10,000) ÷ 2 = $15,000Why it matters
Using average inventory instead of just beginning or end values gives you a more accurate picture of your store’s performance, especially when calculating how fast inventory moves or how well it’s generating profit.