Last updated: March 2025
Quick Answer
Inventory turnover ratio measures how many times your inventory is sold and replaced during a period. A ratio of 4-6x per year is healthy for most industries, meaning stock turns over every 2-3 months.
Key Takeaways
- ✓ Inventory Turnover = COGS ÷ Average Inventory
- ✓ Higher turnover means inventory sells faster and cash isn't tied up
- ✓ Days Sales of Inventory = 365 ÷ Turnover Ratio
- ✓ Compare your ratio against industry benchmarks for context
What Is Inventory Turnover?
Inventory turnover measures how many times a company sells and replaces its inventory during a period. High turnover indicates strong sales and efficient management; low turnover suggests overstocking or weak demand.
How to Calculate
Turnover = COGS ÷ Average Inventory
Average Inventory = (Beginning + Ending) ÷ 2
Days Sales of Inventory = 365 ÷ Turnover
Industry Benchmarks
Grocery: 14+x (26 days). Furniture: 4x (91 days). Luxury goods: 2x (183 days). Benchmark against your specific industry.
Improving Turnover
- Demand forecasting — Use historical data to predict demand
- Clear slow-moving products — Discount or bundle stale items
- Smaller, frequent orders — Reduce carrying costs
- Optimize product mix — Focus on high-velocity items
Frequently Asked Questions
What is a good inventory turnover ratio?
It varies by industry. Grocery stores may have 14-20x, while furniture stores average 4-6x. Generally, higher is better as it means less capital tied up.
How do I improve inventory turnover?
Reduce slow-moving stock, improve demand forecasting, negotiate shorter supplier lead times, and run promotions on stagnant inventory.