Definition
Inventory turnover measures how quickly a company sells through its stock. High turnover indicates strong sales or efficient inventory management, while low turnover suggests weak sales or overstock. Days inventory outstanding (DIO) converts this into the average number of days to sell inventory.
functions Formula
Inventory Turnover = COGS / Average Inventory
lightbulb Example
COGS is $60M and average inventory is $10M. Turnover = 6.0x, meaning inventory is completely sold and replenished 6 times per year (every 61 days).
verified_user Key Points
- Higher turnover generally indicates efficient operations
- DIO = 365 / Turnover gives days to sell inventory
- Industry comparison critical—grocery vs luxury goods differ vastly
- Declining turnover can signal obsolescence risk