Saturday, November 29, 2014

Inventory Turnover

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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