Inventory Turnover Ratio

The inventory turnover ratio shows how many times a company sells and replaces its stock of products over a specific period, usually a year. A higher ratio indicates efficient sales and good inventory management, meaning products are sold quickly and the company isn’t overstocked. Conversely, a low ratio suggests slow sales or excess inventory, which could tie up cash and increase storage costs. This metric helps businesses evaluate how well they are managing their inventory in relation to sales, guiding decisions on purchasing, pricing, and product offerings to optimize profitability.