Inventory Turnover Rate
Number of times inventory is sold and replaced in a period
What is Inventory Turnover Rate?
Inventory turnover rate is the number of times a business sells and replaces its stock in a period. It shows how quickly inventory turns into sales.
Fast turnover means less cash tied up in stock and lower risk of stock becoming obsolete, while very slow turnover suggests overstock.
How this KPI is measured
- Function
- Operations & Supply Chain
- Sub-function
- Inventory Management
- Industry
- All Industries
- Type
- Lagging
- Impact
- Efficiency
- Unit
- x
- Measurement frequency
- Monthly / Quarterly
- Formula
- Cost of goods sold / Average inventory value
How to calculate it
Divide the cost of goods sold by the average inventory value.
For example, if cost of goods sold was 12,000,000 and average inventory was 3,000,000, turnover is 4 times a year.
Use the average of opening and closing inventory, and compare with similar businesses, since typical turnover varies widely by industry.
Where it is used
Managing working capital
Release cash from stock.
Judging buying accuracy
Match stock to demand.
Comparing categories
Find slow-moving lines.
How to improve it
Tips and common mistakes
- Too high a turnover can mean stock-outs and lost sales.
- Compare with your own industry.
- Use cost, not sales, in the calculation.
More Operations & Supply Chain kpi library
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