Inventory turnover
Financial Accounting glossary · Financial Statement Analysis & Ratios
Definition
Cost of goods sold divided by average inventory; measures how rapidly inventory cycles.
Inventory turnover in plain English
Inventory turnover measures how quickly a company sells through its stock of goods and replaces it. You divide the cost of goods sold (what the sold products cost the company) by the average inventory (the typical value of goods sitting on the shelf). A high number means products fly off the shelves and get restocked often; a low number means goods linger, tying up cash and risking going stale or out of style. Picture a bakery: bread turns over daily (great), but a dusty specialty flour that sells once a year turns over slowly — the ratio tells you which is which.
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