what is the inventory turnover ratio 
the inventory turnover ratio is a financial ratio showing how many times a company turned over its inventory relative to its cost of goods sold cogs in a given period a company can then divide the days in the period typically a fiscal year by the inventory turnover ratio to calculate how many days it takes on average to sell its inventory the inventory turnover ratio can help businesses make better decisions on pricing manufacturing marketing and purchasing it is one of the efficiency ratios measuring how effectively a company uses its assets investopedia nono floresunderstanding the inventory turnover ratiothe inventory turnover ratio is a really useful financial metric especially for those companies that has inventory it measures the number of times a company s inventory is sold and replaced over a specific period typically a year a higher inventory is usually better though there may be downsides to a high turnover like most other ratios analyzing the inventory turnover ratio in conjunction with industry benchmarks and historical trends provides valuable insights into a company s operational efficiency and competitiveness on its own the turnover ratio may not mean much however tracking it over time or comparing it against another company s ratio can be more insightful inventory turnover formula and calculationthe inventory turnover ratio is calculated as follows inventory turnover cogs average value of inventory where cogs cost of goods sold begin aligned text inventory turnover frac text cogs text average value of inventory textbf where text cogs text cost of goods sold end aligned inventory turnover average value of inventorycogs where cogs cost of goods sold cost of goods sold cogs is also known as cost of sales analysts use cogs instead of sales in the formula for inventory turnover because inventory is typically valued at cost whereas the sales figure includes the company s markup some companies may use sales instead of cogs in the calculation which would tend to inflate the resulting ratio secondly average value of inventory is used to offset seasonality effects it is calculated by adding the value of inventory at the end of a period to the value of inventory at the end of the prior period and dividing the sum by 2 1