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

The automobile industry has a much lower inventory turnover than the food industry because it takes much longer to sell a car than it does to sell food.

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

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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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