What is Inventory turnover?
Also known as: stock turnover
An indicator that shows how many times during a period (usually a year) a company sold and replaced its inventory. Formula: cost of products (goods) sold ÷ average inventory. Average inventory is usually half the sum of the balances at the beginning and end of the period. The numerator uses cost, not revenue, because inventory is carried in the balance sheet at cost. It also gives "days of inventory": 365 ÷ turnover, that is, how many days on average goods stay in the warehouse. High turnover usually means that money does not stay tied up in inventory for long; a low figure may point to excess or obsolete goods. Comparisons between industries require care: the normal level for a bakery and for a furniture retailer is not the same.
Source: BDC glossary: inventory turnover