A metric that measures how often a business sells and replaces its inventory over a specific period. It’s calculated by dividing the cost of goods sold (COGS) by the average inventory. A high inventory turnover indicates strong sales and efficient inventory management, while a low turnover may signal overstocking or weak demand.
Example:
A clothing store sells $50,000 worth of inventory during the month, and its average inventory value is $10,000.
The inventory turnover is calculated as:
This means the store replenishes its inventory five times in a month, reflecting healthy sales and effective stock management.