inventory turnover

inventory turnover is a financial metric that measures how often a business sells and replaces its inventory within a given period, typically a year. It is a key indicator of inventory management efficiency and how well a company is able to turn its inventory into sales. The formula for calculating inventory turnover is: Inventory Turnover = Cost of Goods Sold (COGS) / Average Inventory. A higher inventory turnover ratio indicates that a company is selling goods quickly and efficiently, which can lead to better cash flow and reduced holding costs. Conversely, a low inventory turnover ratio may suggest that a company has excess inventory, which could lead to increased storage costs and potential obsolescence of products. For retailers and e-commerce businesses, maintaining an optimal inventory turnover is crucial for maximizing profits and minimizing waste. Companies can improve their inventory turnover by optimizing their supply chain, using data-driven forecasting methods, and improving sales through effective marketing strategies.