Inventory turnover
Principles of Finance glossary · Financial Statements, Markets & Working Capital
Definition
Cost of goods sold divided by average inventory.
Inventory turnover in plain English
Inventory turnover tells you how many times in a year a store sells through and refills its entire pile of merchandise — basically, how briskly stuff moves off the shelves. You calculate it by dividing the cost of the goods you sold during the year by the average value of inventory you kept sitting around. A high number means goods fly out fast (great — less cash frozen in unsold stock), while a low number hints products are gathering dust. Think of a bakery selling out its bread daily versus a shop with year-old cans nobody buys.
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