INVENTORY TURNOVER

A rate which measures the number of times an inventory is sold or used over a time period. The days within a specific time period can be divided by the inventory turnover formula in order to compute the days it takes to sell the inventory on hand or inventory turnover days.

Generally computed as: Inventory Turnover = Sales / Inventory

It can also be computed as: Inventory Turnover = Prices of Goods Sold / Average Inventory

A low turnover implies poor sales and excess inventory while a high turnover denotes either firm sales or inefficient buying. Also called stock turns, inventory turns, and stock turnover ratio.

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