Inventory turnover

Inventory turnover, also known as stock turnover, indicates how often the average inventory is consumed or sold within a specific period. For financial measurement, you divide the cost of goods sold by the average inventory value. Use the same valuation basis and period for this; dividing sales at selling prices by inventory at cost price distorts the result.

A low turnover can indicate over-ordering, declining demand, or obsolete items. A high turnover may suggest efficient inventory usage, but also overly tight buffers. Therefore, examine differences by product group and take seasonality into account. In the case of significant fluctuations, an average of multiple measurement points provides better insight than relying solely on beginning and ending inventory.

Tracking inventory turnover helps reveal unnecessary capital tie-up and critically evaluate the product range. The goal is not the highest possible turnover, but an inventory level that aligns with demand and supply risk. Therefore, combine this metric with availability, stockouts, and delivery reliability.