In short
Inventory turnover is cost of goods sold divided by average inventory. It measures how many times a company sells and replaces its inventory in a period.
Key takeaways
- Days in inventory = 365 ÷ inventory turnover.
- A falling turnover can signal slow-moving or obsolete stock.
- It is one part of the cash conversion cycle.
Example
Cost of goods sold $1,200,000 and average inventory $200,000 give a turnover of 6, about 61 days of inventory.
Where it's tested
BAR: Financial Statement Analysis — study notes, a five-minute revision sheet and practice questions.
Practise: 3 questions
Question 1 of 3 · 0 answered
Cost of goods sold was $1,200,000, beginning inventory was $180,000, and ending inventory was $220,000. What is inventory turnover?