Inventory Turnover
Inventory turnover measures how many times a business sells and replaces its stock over a period (usually a year). A higher turnover means inventory is moving quickly and less cash is tied up in stock; a low turnover signals overstock, slow-movers or obsolescence.
Turnover is often expressed alongside days inventory outstanding (DIO) — the average number of days stock is held. The two are simply inverses of each other.
Formula
Inventory turnover = COGS ÷ Average inventory · DIO = 365 ÷ Turnover
COGS — cost of goods sold over the period
DIO — days inventory outstanding — average days stock is held
What counts as "good" varies widely by industry — compare against peers, not an absolute.
Real example
If COGS is $2,000,000 and average inventory is $400,000: Turnover = 2,000,000 ÷ 400,000 = 5× per year, and DIO = 365 ÷ 5 = 73 days of stock on hand.
Also known as
Stock TurnInventory Turns
Related terms
Where this matters at WHIZTEC
Frequently asked
What is DIO?
Days Inventory Outstanding — the average number of days stock is held before it sells. It is 365 divided by inventory turnover.