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Inventory Turnover

Inventory turnover measures how many times inventory is sold and replaced during a given period. It reflects the speed at which the business converts inventory into sales. Formula: Inventory Turnover = COGS ÷ Average Inventory Value

Why It Matters

  • •High turnover indicates fast-moving inventory and efficient use of working capital.
  • •Low turnover signals slow-moving or excess stock, tying up capital and storage resources.
  • •Turnover connects operational activity with financial performance, forming the foundation for DIO and CCC calculations.
  • •Helps compare SKU performance, supplier effectiveness, and category dynamics.

Connection to Capital

Turnover directly influences how quickly capital returns from inventory. A higher turnover reduces DIO and shortens the cash conversion cycle, improving capital efficiency and enabling faster growth without additional funding.

Related Terms

Sales Velocity Working Capital CCC (Cash Conversion Cycle)

Related Articles

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