inventory turnover

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Inventory turnover

A measure of how often the company sells and replaces its inventory. It is the ratio of annual cost of sales to the latest inventory. One can also interpret the ratio as the time to which inventory is held. For example a ratio of 26 implies that inventory is held, on average, for two weeks (365 days in a year divided by inventory turnover ratio of 26 equals 14 days pr 2 weeks average inventory holding period). It is best to use this ratio to compare companies within an industry (high turnover is a good sign) because there are huge differences in this ratio across industries.

Inventory Turnover

A measure of how long it takes, on average, for a company to sell and replace its inventory. Inventory turnover can help a company or potential investor determine how well the company manages its inventory. Higher inventory turnover is considered to be desirable. The turnover is calculated as follows:

Inventory turnover = Cost of goods sold / ( ( Beginning inventory + ending inventory ) / 2 )

inventory turnover

A measure indicating the number of times a firm sells and replaces its inventory during a given period and calculated by dividing the cost of goods sold by the average inventory level. A relatively low inventory turnover may indicate ineffective inventory management (that is, carrying too large an inventory) or carrying out-of-date inventory to avoid writing off inventory losses against income. A high inventory turnover is generally desirable.
References in periodicals archive ?
The inventory turnover ratio can be a very useful tool.
Professors Ginter and LaLonde, who head up OSU's renowned Supply Chain Management Research Group, set out to assess to what extent inventory turnover rates have increased during the past 23 years.
Investment in IT and improved distribution and inventory management procedures should translate into higher inventory turnover.
A sudden build-up in inventories or a decline in the inventory turnover rate is always a cause for further investigation.
Infor XA customers using the new XA MES Suite will benefit from real-time production reporting, shorter manufacturing cycle times, faster inventory turnover, more on-time deliveries, a higher quality end product and enhanced cash flow.
Schumacher also commented that as its anticipated growth in revenues is realized, the Company expects better margin performance through its unit cost reduction efforts and improved inventory turnover.
Although we will still maintain local warehouses in each market, we anticipate greater inventory turnover and return on investment with the centralization of many stock-keeping functions.
DLS is able to aggressively attract consumers from the local and national markets because of the competitive advantage provided by its product acquisition channels and because its sales per employee, sales per square foot of selling space and inventory turnover are among the highest in the jewelry industry.
Since FY 2000 inventory turnover has typically ranged between 0.
The rating reflects Forecast's conservative homebuilding strategy, good management, high inventory turnover, financial liquidity, past operating performance, and bond indenture covenants.
Standard Pacific's EBITDA, EBIT and FFO to interest ratios tend to be somewhat below the average public homebuilder, as does inventory turnover.
During the second quarter, both inventory turnover and gross margins improved as the direct result of our disciplined purchasing and markdown policies," stated Schaefer.