What is Inventory Turns?

Inventory turnover is a ratio showing how many times a company has sold and replaced inventory during a period. The company can then divide the days in the period by the inventory turnover formula to calculate the days it takes to sell the inventory on hand. It is calculated as sales divided by average inventory.

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This ratio gives the number of times inventory is rolled over by a company, hence obviously, higher the ratio, better is the business.

Inventory, if not converted into sales fast, would mean money is locked in the business. Also, perishable goods may start deteriorating if inventory is not turned into sales fast.

This ratio would be high for FMCG companies whereas low for capital goods companies.

Inventory Turnover = Sales/ Inventory