The preferred formula for calculating the true turn is to multiply the stock order performance (percentage) by the gross turnover. True inventory turns, consequently, are a good measure of how profitable the dealership’s inventory investment really is. Therefore, parts sold from stock generate higher gross profit margins, which translates to higher net profits. Gross turns include emergency purchases, which may fill an immediate need, but in the long run increase the acquisition costs of parts, reduce your earned discount amount and does not add to your return reserve you are earn from the manufacturer. It is the best indicator on how the managed inventory is meeting the needs of the customers, whether they be counter retail, wholesale or service customers, since it uses only parts sold from stock to calculate the true turn of the inventory. True turnover or “true turn” represents a clearer picture of the return on investment of the parts inventory. We suggest using another measurement, “true turns,” as well. Using this “gross turns” method represents all parts inventory, including special orders and emergency purchases, so it doesn’t give a true picture of the parts departments’ efficiency - the return on the investment of the parts department isn’t truly calculated using this method. If, for example, the cost of goods sold is $750,000, and the average inventory value over 12 months is $125,000, the gross turnover ratio would be 6.0, or six times per year. To calculate gross turnover, divide the cost of goods sold by average inventory value. Gross turnover is represented by the ratio of the cost of goods sold, to the average inventory value, over a certain period of time.
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