One complete turnover of inventory means the company sold the stock that it purchased, less any items lost to damage or shrinkage. Inventory turnover refers to the amount of time that passes from the day an item is purchased by a company until it is sold. Conversely, a low ratio indicates weak sales, lacklustre market demand or an inventory glut.Įither way, knowing where the sales winds blow will inform how to set your company’s sails. A high ratio implies strong sales or insufficient inventory to support sales at that rate. Turnover ratio also reveals a lot about a company’s forecasting, inventory management and sales and marketing expertise. That inventory turnover calculation informs everything from pricing strategy and supplier relationships to promotions and the product lifecycle.

Generally, however, items drift along somewhere in the middle, meaning all companies need a handle on what’s moving and how quickly.

Other times, you can’t discount deeply enough.