Inventory Turnover
A ratio showing how many times a company's inventory is sold and replaced over a period.
Investopedia Says:
Although the first calculation is more frequently used, COGS (cost of goods sold) may be substituted because sales are recorded at market value, while inventories are usually recorded at cost. Also, average inventory may be used instead of the ending inventory level to minimize seasonal factors.
This ratio should be compared against industry averages. A low turnover implies poor sales and, therefore, excess inventory. A high ratio implies either strong sales or ineffective buying.
High inventory levels are unhealthy because they represent an investment with a rate of return of zero. It also opens the company up to trouble should prices begin to fall. Related Terms:
Asset Turnover
Carrying Cost Of Inventory
Channel Stuffing
Cost Of Goods Sold - COGS
Gross Margin Return On Investment - GMROI
Inventory
Periodic Inventory
Revenue
Working Capital Management |