What is the Inventory Turnover Ratio?

Inventory turnover, also known as Sales Turnover, is a metric representing the rate at which a company sells its inventory and replaces it in a given period. 

Inventory Turnover Ratio = COGS / Average Inventory

This metric is calculated by dividing the number of goods or cost of goods sold by the average inventory. An inventory turnover ratio helps companies make sales and production decisions that will further enhance profitability and customers satisfaction.

Back to: Accounting & Taxation

How to calculate Inventory Turnover?

There are multiple ways to calculate the inventory turnover of a company. The cost of goods sold (COGS) can be divided by the average inventory. 

Inventory turnover can also be calculated as sales divided by average inventory. The average inventory is calculated by adding the beginning inventory to the ending inventory and divide by 2; (beginning inventory + ending inventory)/2. 

What is the Average Sales Period?

Average sale period = 365 days/Inventory turnover ratio

Indicates how many days it takes on average to sell the company’s inventory.

Related Topics

• Trend Analysis of Financial Statements
• Common-Size Analysis (Vertical Analysis) of Financial Statements
• Common-Size Financial Statement
• Net Dollar Retention
• Horizontal Analysis
• Per Share Basis
• Profitability Ratios
• Gross Margin Ratio
• Profit Margin
• After Tax Profit Margin
• Return on Assets
• Total Shareholder Return
• Cash on Cash Return
• Earnings Per Share
• Diluted Earnings Per Share
• Asset Turnover Ratio
• Berry Ratio
• Break-Even Analysis
• Liquidity Ratio
• Current ratio  (Working Capital Ratio)
• Working Ratio
• Quick Ratio
• Quick Assets
• Days Sales Outstanding
• Cash Ratio (Operating Cash Flow Ratio)
• Receivables turnover ratio (often converted to average collection period)
• Accounts Payable Turnover Ratio
• Inventory turnover ratio (often converted to average sale period)
• Solvency (Coverage Ratios)
• Leverage Ratio (Debt Ratio)
• Asset Coverage Ratio
• Debt to Equity
• Debt to Income Ratio
• Debt Coverage Ratio
• Times Interest Earned
• Market Capitalization
• Price to Equity Ratio
• Book-To-Market Ratio
• Price to Earnings Ratio
• Price to Earnings Growth (PEG) Ratio
• Price to Earnings Growth Payback Ratio
• CAPE Ratio
• Price to Cash Flow Ratio
• Capital Maintenance
• Book to Bill Ratio
• Asset Turnover Ratio
• Plowback Ratio 
• Days Inventory Outstanding
• Days Payable Outstanding
• Days Sales Outstanding
• Non-financial Performance Measures: The Balance Scorecard