Inventory Turnover (aka ‘inventory
turns’, ‘stockturn’, ‘stock turns’, ‘turns’, and ‘stock turnover’) refers to a number
of times inventory is sold or used in a time period such as a year. It is
calculated by dividing your COGS (Cost of Goods Sold) by your Average Inventory
for your accounting period.
This ratio should be
compared against industry averages. A low turnover implies poor sales and,
therefore, excess inventory. A high ratio implies either strong sales or
ineffective buying. Therefore, as is the case with any other KPI, your Inventory
Turnover values need to be carefully optimized.
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