Inventory turnover is a measure of how efficiently a company is managing its inventory. It is calculated by dividing the cost of goods sold by the average inventory value during a specific period of time. A high inventory turnover ratio indicates that a company is selling its products quickly and efficiently, while a low ratio suggests that a company may be holding onto too much inventory or experiencing slow sales. This metric is important for businesses to monitor as it can impact cash flow, profitability, and customer satisfaction. By analyzing inventory turnover, companies can identify trends and make informed decisions about purchasing, production, and sales strategies. Ultimately, a strong inventory turnover ratio can lead to increased revenue and improved financial performance.
