Inventory is money sitting on a shelf. Inventory turnover tells you how quickly that money cycles back into cash — and it's one of the clearest signals of how healthy your stock management really is.
What the ratio measures
Turnover is cost of goods sold divided by average inventory, giving the number of times stock is fully replaced in a year. The complement, days in inventory, frames the same figure in the terms buyers feel: how long a product waits to be sold.
The cost of slow stock
Slow inventory ties up cash, accrues storage and insurance costs, and risks obsolescence. On the flip side, pushing turnover too hard starves shelves and forces expedited orders that eat the savings. The aim is a ratio matched to your industry and demand patterns.
Improving the number
Better forecasts, smaller but more frequent orders, and clearing slow lines all lift turnover. Because the ratio uses average inventory, smoothing out seasonal spikes with a multi-period average gives a truer reading of how you're doing.
Frequently asked questions
Inventory turnover = cost of goods sold ÷ average inventory. With $200,000 COGS and $35,000 average inventory, turnover is 5.7×.
It's 365 ÷ turnover — the average number of days stock sits before selling. A turnover of 5.7× means roughly 64 days in inventory.
It varies by industry: grocery and perishables can exceed 10×, while furniture, jewelry and equipment often sit well under 3×. Compare with your own sector.