Inventory Turnover - Definition
Written by Jason Gordon
Updated at December 11th, 2020
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What is Inventory Turnover?
Inventory turnover is a metric representing the rate at which a company sells its inventory and replaces it in a given period. 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: OPERATIONS, LOGISTICS, & SUPPLY CHAIN MANAGEMENT
How to calculate Inventory Turnover?
There are multipel 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.
Calculating the inventory turnover of a company as sales divided by average inventory is not an accurate method.
Research articles for Inventory Turn over
- An econometric analysis of inventory turnover performance in retail services, Gaur, V., Fisher, M. L., & Raman, A. (2005). Management science, 51(2), 181-194.
- The impact of lean practices on inventory turnover, Demeter, K., & Matyusz, Z. (2011). International Journal of Production Economics, 133(1), 154-163.
- Evaluating inventory management performance using a turnover curve, Ballou, R. H. (2000). International Journal of Physical Distribution & Logistics Management, 30(1), 72-85.
- The effects of firm size and sales growth rate on inventory turnover performance in the US retail sector, An examination of inventory turnover in the Fortune 500 industrial companies, Vergin, R. C. (1998). Production and Inventory Management Journal, 39(1), 51.
- Expressing inventory control policy in the turnover curve, Ballou, R. H. (2005). Journal of Business Logistics, 26(2), 143-164. An empirical analysis of inventory turnover behaviour in Greek retail sector: 20002005, Kolias, G. D., Dimelis, S. P., & Filios, V. P. (2011). International Journal of Production Economics, 133(1), 143-153.
- The effect of inventory management on firm performance, Koumanakos, D. P. (2008). International journal of productivity and performance management, 57(5), 355-369.
- System, method, and computer program product for increasing inventory turnover using targeted consumer offers, Juang, D., & Rane, R. R. (2012). U.S. Patent No. 8,335,720. Washington, DC: U.S. Patent and Trademark Office.
- Inventory-turnover analysis: its importance for on-site food service, Reynolds, D. (1999). Cornell Hotel and Restaurant Administration Quarterly, 40(2), 54-58.