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Definition

What is Inventory Turnover?

How many times inventory is sold and replaced in a period.

Inventory turnover measures how efficiently stock converts to sales. Low turnover ties up cash and increases holding, storage, and obsolescence costs; very high turnover risks stockouts and missed sales. Healthy ranges vary widely by category — grocery turns weekly, furniture may turn two to four times a year. Turnover connects directly to reorder timing and the cash conversion cycle.

Formula

Inventory Turnover = COGS ÷ Average Inventory Value

Example

$360,000 annual COGS against $60,000 average inventory = 6 turns per year, or roughly 61 days of inventory on hand.

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Related terms

  • Cash Conversion Cycle — Days between paying for inventory and collecting cash from its sale.
  • Reorder Point — The inventory level at which a new order must be placed to avoid a stockout.
  • Safety Stock — Buffer inventory held to absorb demand spikes and supplier delays.
  • COGS (Cost of Goods Sold) — The direct costs of producing or delivering what you sell.