What is inventory turnover?
The inventory turnover ratio (or stock turn) measures how quickly inventory moves. High turnover generally means strong sales or lean stock; low turnover suggests overstocking, weak demand or obsolete items.
Formulas
Inventory turnover = [Cost of goods sold](/glossary/cost-of-goods-sold) ÷ Average inventory
Average inventory = (Opening inventory + Closing inventory) ÷ 2
Days inventory outstanding (DIO) = 365 ÷ Inventory turnover
Example
A shop's annual COGS is $360,000. Inventory was $50,000 at the start of the year and $40,000 at the end, so average inventory is $45,000.
- Turnover = 360,000 ÷ 45,000 = 8 times a year
- DIO = 365 ÷ 8 ≈ 46 days
Interpreting it
- Grocery and fast fashion: high turnover is normal.
- Furniture, jewellery and machinery: lower turnover is normal.
- Compare against your own history and industry peers.
How to improve it
- Use sales data to forecast demand.
- Clear slow-moving and obsolete stock (see [inventory obsolescence](/glossary/accounting-for-inventory-obsolescence)).
- Negotiate smaller, more frequent deliveries, or adopt [just-in-time inventory](/glossary/just-in-time-inventory).
- Review pricing and promotions.