inventory turnover

Definition

Inventory turnover quantifies how often a company sells and replaces its stock over a specific period, revealing the efficiency of inventory management. It is calculated by dividing the cost of goods sold by the average inventory value during the same period. A higher turnover indicates strong demand and effective stock control, minimizing holding costs and spoilage risks. A lower turnover may point to overstocking, obsolete products, or weak demand, tying up capital unnecessarily. Manufacturers and retailers track this ratio to optimize ordering schedules and production planning. Analysis against industry benchmarks helps assess whether inventory levels align with sales cycles. Monitoring changes over time highlights shifts in market demand or supply chain performance that management must address.

See also