Inventory Turnover is a financial metric that measures how many times a company sells and replaces its inventory during a specific period.
How It Works:
- Cost of goods sold is calculated.
- Average inventory is determined.
- Inventory turnover is calculated by dividing cost by inventory.
- The ratio indicates how quickly stock is sold.
Benefits:
- Helps assess inventory efficiency
- Reduces holding costs
- Improves cash flow
- Supports better stock management
Example:
A company with high turnover sells its inventory quickly and restocks frequently.