Inventory turnover
Inventory turnover measures how many times stock fully renews over a given period, usually a year. It is one of the most telling indicators of a stock's health: high turnover means goods are not sitting idle, while low turnover signals tied-up capital, obsolescence risk and space taken up for nothing. In a single value, it tells you whether stock is working for the business or against it.
How to calculate inventory turnover
The calculation is direct: you divide what went out over the period by the average stock held during that period. In practice, you relate the cost of goods sold (or the volume shipped) to average inventory. A result of six, for example, means stock renewed six times in the year. From it you easily derive coverage — the number of days of stock — by dividing the period length by turnover. Turnover and coverage are two sides of the same reality: one in number of turns, the other in days.
How to interpret it
There is no universal «good» rate: turnover is always read against a sector and a product type. A grocery turns far faster than a maker of industrial parts. What matters is the comparison over time (is my turnover improving?) and across item families (which products are sleeping?). Falling turnover flags overstock or weakening demand; very high turnover can, conversely, hide frequent stockouts. The indicator opens the question; it does not answer it alone.
When to track it in an SME
As soon as an SME ties up capital in stock, turnover deserves tracking, at least by broad item family. It is a steering indicator typical of the execution layer of the Two-Layer Model: it measures whether the stock policy decided upstream actually produces the intended effect on the ground, and shows where to act when it does not.
The common mistake
The most frequent mistake is to compute a single global turnover for the whole company and be content with it. That average hides the essential: a few fast-moving items can mask a mass of references that sit idle. Turnover is only valuable when segmented, family by family. The other trap is reading it in isolation: high turnover is only good if service holds at the same time. A third error is chasing a single target rate borrowed from another company or sector, without checking that it fits your own products, margins and lead times — a figure that means little out of context.
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Frequently asked questions
What is inventory turnover?
It is the number of times stock fully renews over a period, usually a year; it shows whether goods sit idle or circulate.
How do you calculate inventory turnover?
By dividing what went out over the period (cost of goods sold or volume shipped) by the average stock held during that same period.
What is a good turnover rate?
There is no universal value: turnover is read against the sector, the product type and its evolution over time.