Operations · business glossary
What is Inventory turnover?
By Shivam Bhandari · Reviewed 31 October 2026 · How we write
definition
How many times a business sells and replaces its stock over a given period — a higher number generally means healthier cash flow.
Inventory turnover explained
Inventory turnover measures how many times stock is sold and replaced in a year.
formula
Inventory turnover = Cost of goods sold ÷ Average inventory
example
₹36 lakh cost of goods sold and ₹6 lakh average stock gives a turnover of 6, or about 61 days of stock.
why it matters
Faster turnover frees cash and reduces the risk of stock becoming obsolete.
common mistake
Cutting stock so low that you run out of best-sellers.
Frequently asked questions
What is Inventory turnover?
How many times a business sells and replaces its stock over a given period — a higher number generally means healthier cash flow. Inventory turnover measures how many times stock is sold and replaced in a year.
How do you calculate Inventory turnover?
Inventory turnover = Cost of goods sold ÷ Average inventory. ₹36 lakh cost of goods sold and ₹6 lakh average stock gives a turnover of 6, or about 61 days of stock.
Why does Inventory turnover matter?
Faster turnover frees cash and reduces the risk of stock becoming obsolete.
What is a common mistake with Inventory turnover?
Cutting stock so low that you run out of best-sellers.
Related terms
Working capital
The cash tied up in day-to-day operations — inventory and money owed to you, minus money you owe — that keeps the business running between sale and payment.
Just-in-time (JIT)
Receiving inventory only as close as possible to when it's actually needed, minimising cash tied up in stored stock.
Supply chain
The full sequence of steps and parties involved in getting a product from raw material to the final customer.