Plain definition
Inventory turnover measures how many times average inventory is sold or used during a period: cost of sales ÷ average inventory. It is the reciprocal time view of inventory days when the same basis is used.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
A retailer has cost of sales and average inventory, giving six turns in the year. A plan to lift turnover by cutting stock appears attractive until the store repeatedly misses fast-selling sizes. The manager compares lost margin and service failures with the cash released.
Why it matters
High turnover is not automatically better; it may reflect efficient replenishment or inadequate availability. Low turnover may reflect deliberate seasonal stock or a real cash drain.
Practical consequence
Use the same cost basis and period each time, analyse categories rather than a single total, and pair turnover with stock-out, markdown, and cash-forecast evidence.
Try your own numbers
Measure cash tied up in receivables and inventory, less supplier credit, then test a target cycle.
Working-capital cycle