inventory turnover
A ratio showing how many times a company sells and replaces its inventory in a given period, indicating sales efficiency and inventory management.
Example
“The grocery chain's inventory turnover of 52 meant it sold and restocked its entire inventory every week.”
Memory Tip
Inventory TURNOVER = how fast you TURN OVER (sell) your inventory. Higher = more efficient.
Why It Matters
Understanding inventory turnover helps you evaluate how efficiently a company you invest in or work for manages its resources. A healthy turnover rate indicates strong sales and effective inventory management, which can signal a good investment opportunity or stable employer.
Common Misconception
Many people assume that higher inventory turnover is always better, but extremely high turnover can actually indicate understocking that leads to lost sales opportunities. The ideal turnover rate depends on the industry and business model, so context matters more than the raw number.
In Practice
A retail store with 50 million dollars in annual sales and an average inventory value of 10 million dollars would have an inventory turnover of 5, meaning it sells and replaces its entire inventory 5 times per year. If the same store improved its operations and achieved 60 million dollars in sales with the same inventory level, its turnover would jump to 6, showing improved efficiency.
Etymology
INVENTORY (goods in stock) TURNOVER (sold and replaced). How many times inventory is TURNED OVER.
Common Misspellings
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Related Terms
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See Also
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