Definition
Inventory turnover measures how quickly a company sells its inventory. Higher turnover indicates efficient inventory management and strong demand. Low turnover may signal obsolete inventory or weak sales. Days inventory outstanding (DIO) converts turnover to days.
Formula
Inventory Turnover = COGS / Average Inventory; DIO = 365 / Inventory Turnover
Example
With $200M COGS and $50M average inventory, turnover is 4x. That's 91 days inventory on hand. Fast-fashion retailers might turn inventory 12x (30 days).
FAQ
What is Inventory Turnover?
How many times inventory is sold and replaced in a period.
How do you calculate Inventory Turnover?
A common formula for Inventory Turnover is: Inventory Turnover = COGS / Average Inventory; DIO = 365 / Inventory Turnover
Why is Inventory Turnover important?
Inventory Turnover helps investors evaluate efficiency and make more informed decisions.