Inventory Turnover Ratio
Definition
How many times a business sells and replaces its inventory over a period. A higher turnover generally indicates strong sales or lean stock, while a low figure may signal overstocking or slow demand.
Formula
Inventory turnover = COGS ÷ Average inventory
Related Terms in Financial Analysis
Asset Turnover Ratio
Revenue generated per unit of total assets, measuring how efficiently a business uses its assets to produce sales. It is especially relevant for asset-heavy industries.
Cash Conversion Cycle
The number of days it takes a business to turn cash spent on inventory back into cash from customers. It combines days inventory outstanding and days sales outstanding, less days payable outstanding.
Days Inventory Outstanding (DIO)
The average number of days a business holds inventory before selling it. A lower DIO means stock moves quickly; a higher DIO ties up cash in unsold goods.
Gearing Ratio
A measure of the proportion of a business funded by debt relative to equity, indicating financial leverage. High gearing increases both potential returns and risk.
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