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What is inventory turnover?

Inventory Turnover

This is a way of measuring how many times a company's inventory, or total number of items in stock, is sold and replaced over a certain period of time.

Where have you heard about inventory turnover?

If you're in business you'll know that managing your inventory levels is important if you're in retail or selling any products. You might have heard of the inventory turnover ratio, which evaluates how efficient a company is at managing inventory and generating sales.

What you need to know about inventory turnover.

It's useful for businesses to measure their inventory turnover because a low rate may mean the firm is overstocking or there are problems with its products or marketing strategy. A turnover rate that is too high may mean there is an inadequate supply of stock, which could mean the company loses business because its inventory is too low. However, there may be times when a low inventory turnover rate is a good thing, for example if a company has a higher inventory level at a time when market shortages are expected.

Find out more about inventory turnover.

It's one of the elements involved in calculating return on assets. Find out more with our guide.

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