Glossary / Inventory Turnover
Inventory Turnover
Inventory turnover measures how many times a business sells and replaces its inventory in a period. It is calculated as cost of goods sold divided by average inventory. Retailers, wholesalers, and manufacturers use it to spot slow-moving stock, cash trapped in inventory, and buying or production issues.
Formula
Inventory turnover = COGS / Average inventory
Example
If a retailer has $500,000 in annual COGS and $100,000 in average inventory, inventory turnover is 5. The store sells through its average inventory five times per year.
Why it matters
Low turnover can mean overstocking, weak demand, or stale SKUs. Very high turnover can mean stockouts or under-buying. The healthy range depends heavily on product category.
Related terms
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