The cause of either a high or a low inventory turnover rate may also denote problems with your current sales and marketing strategy. Conversely, a high inventory turnover suggests strong sales – but this could also be attributed to inadequate inventory levels.Ī low inventory turnover can be an advantage during periods of inflation if it reflects larger inventory purchases ahead of supplier price increases, anticipated supply chain disruptions, or periods of higher demand. High inventory turnover or low inventory turnover – what’s better?ĭo I want my inventory turnover to be high or low? What’s the difference?Ī low inventory turnover indicates two things: either sales are weak, or you have excessive inventory. It calculates the average number of days it takes you to sell your inventory and highlights how efficiently you use your inventory assets. The inventory turnover period for your business divides the days within the sales period by your inventory turnover ratio. It tells you how many days it takes for you to sell your on-hand inventory stock. The inventory turnover period is the time taken from when you purchase inventory until the time those goods are sold. This ratio helps you to determine how efficiently you are managing and selling inventory and is a key indicator of the overall health of your business. The inventory turnover ratio reflects the frequency of your inventory turnover – the number of times your inventory turns over within a specified period – relative to its cost of goods sold (COGS) for that same period.

Inventory turnover is expressed as a financial ratio. The purpose of measuring inventory turnover is to identify how many units of inventory your business has sold in a specific period compared to your units of inventory on hand.

Inventory turnover, also called stock turnover, is the speed and regularity with which your organisation sells its physical goods.

Turnover rate definition