Inventory Turnover Ratio
Category: Strategic
Measures how many times inventory is sold and replaced over a period of time.
What it Measures ?
How often inventory is sold and replenished.
Relevant StakeHolders
Inventory Planner, Warehouse Manager
Why it Matters ?
Reduces inventory carrying costs.
In-depth Use Case / Real-world Example
A company producing electronic components calculates Inventory Turnover Ratio by dividing the cost of goods sold (COGS) by the average inventory value. For example, if the COGS is ₹50 crore and the average inventory is ₹10 crore, the Inventory Turnover Ratio is 5. A higher ratio means the company is selling inventory more quickly, which helps minimize holding costs and improves cash flow.
Sample Formula
Cost of Goods Sold / Average Inventory Value