inventory turnover

Definition

The ratio of a company's annual sales to its inventory; or equivalently, the fraction of a year that an average item remains in inventory. Low turnover is a sign of inefficiency, since inventory usually has a rate of return of zero. For instance, if a company was able to generate $10 million in sales but averaged $5 million in inventory, the inventory turnover would be 10 million / 5 million = 2. This number indicates that there would be 2 inventory turns per year, meaning that it would take 6 months to sell all the inventory.

Use inventory turnover in a sentence

YOu should always strive to have very high inventory turnover so that you know you are moving a lot of product.

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In order to reach their financial projections, the company needed an inventory turnover rate of at least 10 for the year.

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The inventory turnover remained high so we decided to investigate the reason for the statistically unique result from our operations.

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