.svg)
Inventory Turnover Ratio
How many times a company sells and replaces its inventory during a period, measuring inventory management efficiency.
Formula
Inventory Turnover = Cost of Goods Sold / Average Inventory
Average Inventory = (Beginning Inventory + Ending Inventory) / 2
Days Inventory Outstanding = 365 / Inventory Turnover
Definition
What is Inventory Turnover?
Inventory turnover measures how quickly you sell through your stock. Higher turnover means faster-moving inventory, better cash flow, and lower holding costs. Lower turnover suggests overstocking or slow-moving products.
Turnover Benchmarks
Ecommerce: 4-6x annually is typical. Fast-moving consumer goods: 8-12x. Luxury goods: 2-4x. The ideal rate depends on your margins and industry.
Improving Turnover
Reduce slow-moving SKUs, improve demand forecasting, implement just-in-time ordering, run promotions on stagnant inventory, and optimize reorder points.
Example
Ecommerce business annual figures:
- Cost of Goods Sold: $600,000
- Beginning Inventory: $150,000
- Ending Inventory: $100,000
Average Inventory = ($150K + $100K) / 2 = $125,000
Turnover = $600K / $125K = 4.8x per year
Days = 365 / 4.8 = 76 days average to sell inventory
Related Terms
Explore other financial terms and metrics
Get complete financial clarity in under 10 minutes. No more broken spreadsheets, no more QuickBooks chaos—just the insights you need to scale with confidence.
