What is Inventory Turnover?
Inventory turnover is how many times a business sells through its average stock in a period, calculated as cost of goods sold divided by average stock at cost.
Updated
Meaning
English
Inventory turnover is how many times a business sells through its average stock in a period, calculated as cost of goods sold divided by average stock at cost.
Roman Urdu
Inventory turnover batata hai ke ek muddat me average stock kitni baar bik kar dobara aaya: COGS taqseem average stock (cost par).
Also called stock turnover, stock turn, inventory turns, days of stock.
Example
A kiryana's cost of goods sold for the year is 24 million rupees and its average stock at cost is 2 million. Turnover is 12 times a year, so stock sits about a month on average.
How it works
Turnover shows how hard stock is working. A higher number means less cash tied up for the same sales. Grocery and fresh food turn fast; furniture, jewellery and hardware turn slowly, so compare a shop with itself over time and with similar businesses, not with a fixed target.
The same idea expressed in days is often easier: 365 divided by turnover gives the average days of stock. Look at it by category. A shop with good overall turnover may still have one category that hardly moves and hides a lot of cash.
In Nafaa
Nafaa's low stock page shows how many days each item's stock will last at its recent selling rate, and the stock report shows stock value with dead, slow and fast movers, which together show where stock turns slowly.
Related terms
- Dead Stock
Dead stock is inventory that has not sold for a long time and is unlikely to sell at its normal price.
- Working Capital
Working capital is the money tied up in running the business day to day: stock plus money owed by customers plus cash, minus what is owed to suppliers.
- COGS (Cost of Goods Sold)
Cost of goods sold is the purchase cost of the items a business actually sold in a period, which is subtracted from sales to find gross profit.
- Stock Valuation
Stock valuation is the money value of the inventory a business holds on a date, usually counted at cost.