What is Inventory Turnover?

Inventory turnover is the number of times a company sells and replaces its stock over a period, measuring how efficiently inventory is converted into sales.

A high turnover ratio indicates strong sales or lean stock management; a low ratio warns of overstocking, obsolescence or weak demand. The inverse — Days Inventory Outstanding (DIO) — expresses the same idea in days of supply.

Benchmarks vary widely: a supermarket may turn inventory 15–25 times a year, a fashion retailer 4–8 times, a luxury watchmaker once. Aiming for an industry-appropriate level balances availability against working capital cost and write-off risk.

Formula

Inventory Turnover = COGS ÷ Average Inventory

Example

A retailer with CHF 2m COGS and average inventory of CHF 250,000 turns inventory 8 times per year, or roughly every 46 days.

Related terms

Working Capital

Working capital is the difference between a company's current assets and its current liabilities, measuring the short-term liquidity available to fund day-to-day operations.

Balance Sheet

The balance sheet is a financial statement that shows a company's assets, liabilities and shareholders' equity at a single point in time, governed by the accounting equation Assets = Liabilities + Equity.

Revenue

Revenue is the total income a business generates from selling goods or services before any costs or expenses are deducted, also called the top line.

Cash Flow

Cash flow is the net amount of cash moving into and out of a business during a period, measuring the actual liquidity created or consumed rather than accounting profit.

Frequently asked questions

What is a healthy turnover ratio?+

Entirely industry-specific; compare against peers.

Is higher always better?+

Not always — too high may cause stock-outs and lost sales.

How is it related to working capital?+

Lower inventory means less working capital tied up, freeing cash for other uses.