What is Inventory Turnover?
How many times a year you sell through and replace your stock - a read on inventory efficiency.
Inventory Turnover: definition
Inventory turnover reveals how efficiently a business converts stock into sales. High turnover suggests strong demand and lean inventory management; low turnover can indicate overstocking, weak sales, or obsolete goods. It is the counterpart to days inventory outstanding - turnover as a frequency, DIO as a duration.
Inventory turnover
Inventory Turnover = Cost of Goods Sold ÷ Average Inventory
Average inventory is typically (beginning + ending) ÷ 2. Using COGS (not revenue) keeps numerator and denominator on a cost basis.
How Fintra handles it
Fintra tracks inventory and cost of goods sold together, so turnover updates as sales post rather than being recomputed manually. Turnover by product or category shows which lines move and which stall, and the metric ties into the cash conversion cycle so its cash impact is clear.
- Turnover computed from COGS and average inventory, by product or category
- Slow-moving lines flagged before they become dead stock
- Connected to DIO and the cash conversion cycle
Worked example
Frequently asked questions
What is a good inventory turnover ratio?
It depends heavily on the industry - grocery and fast fashion turn over many times a year, while heavy equipment turns over slowly. Generally, higher turnover means efficient inventory use, but too high can risk stockouts. Compare against your sector and history.
Should inventory turnover use COGS or sales?
Cost of goods sold is the more accurate numerator because inventory is carried at cost, so both parts of the ratio share a cost basis. Using revenue inflates turnover by including the profit margin, distorting comparisons.
What does low inventory turnover indicate?
Slow-moving stock, overstocking, weak demand, or obsolescence. It ties up cash and raises holding and write-off risk. Investigating which products drive low turnover helps decide whether to discount, discontinue, or reduce future orders.
How is inventory turnover related to DIO?
They are two views of the same efficiency. Days inventory outstanding equals 365 divided by inventory turnover. A turnover of 6 corresponds to a DIO of about 61 days. Turnover counts cycles per year; DIO measures days per cycle.
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