The inventory turnover ratio is a financial metric that measures the efficiency of a company’s inventory management. It is calculated by dividing the cost of goods sold by the average inventory value during a specific period. A high inventory turnover ratio indicates that a company is selling its inventory quickly and efficiently, while a low ratio suggests that a company may be holding onto too much inventory or experiencing slow sales. This ratio is important for businesses to monitor as it can impact cash flow, profitability, and overall financial health. By analyzing the inventory turnover ratio, companies can make informed decisions about inventory management, such as adjusting purchasing and production levels, improving supply chain processes, and identifying slow-moving or obsolete inventory. Ultimately, a strong inventory turnover ratio can lead to increased revenue and improved financial performance.
