Business, finance and operations
Inventory turnover
- Business, finance and operations
Definition
How many times a business sells and replaces its stock in a period, found by dividing the cost of goods sold by the average value of stock held.
For your role
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Why it matters
Faster turnover usually means less cash tied up in stock and less risk of obsolete parts; too fast can mean stock-outs.
Where it is used
Stock reports, supply chain reviews and working capital analysis. Used by supply chain planners, inventory controllers, operations managers and finance analysts.
How to calculate it
Inventory turnover = cost of goods sold ÷ average inventory
Days inventory on hand = days in period ÷ inventory turnover
Worked example
ILLUSTRATION with one real input. Raket Parts B.V. direct costs for January to September 2025 were €20,846,466 (ledger). The data set holds no stock balance. With an illustrative average inventory of €3,000,000, turnover = €20,846,466 / €3,000,000 = 6.9 times in nine months, about 9.3 times a year, or roughly 39 days of stock.
Raket Parts B.V. is a fictional company created for Insyt.
Definitions vary. Some use sales instead of cost of goods sold, or year-end instead of average stock, which inflates the figure. Check how your organisation calculates it.