A financial metric that measures the rate at which a company sells and replaces its stock of goods within a certain period, such as a fiscal year.
It is calculated by dividing the cost of goods sold (COGS) by the average inventory during the same period. This ratio indicates how efficiently a company manages its inventory, reflecting how many times the company’s inventory is sold and restocked. A higher inventory turnover ratio suggests that a company is selling goods quickly and efficiently, whereas a lower ratio may indicate overstocking or challenges in selling products.