The turnover rate is an extremely important efficiency metric to determine how much a business sells as a percentage of its total inventory. You get a good indication of what the ratio is between the sales made and the inventory held on hand.
So this number shows that the company purchased a lot of inventory during the year. But if the business sold 5000 units, while having 1000 units in stock on average, then the ITR is 5. So the company turned over the inventory only once. As the name of the ratio implies, by calculating the inventory turnover you will understand how your inventory “turns over” or sells during a fixed time period.įollowing simple numerical logic based on units, if a company had 1000 units in stock on average and sold 1000 units in the year, then the ITR is 1. It is an efficiency rate that shows how effectively companies manage the inventory. Inventory turnover is a ratio (ITR) that helps businesses see how many times they sold and replaced products/inventory within a given period of time. What Is an Inventory Turnover Rate and Why Is It Important? But what is a good inventory turnover ratio? In this blog post, we’ll guide you through everything you need to know about inventory turnover and reveal the ways to achieve a high inventory turnover. Inventory turnover ratio is a business performance metric that can help you understand how well your company translates inventory into profit. If you run a business that sells physical products, accurate and up-to-date inventory management is crucial for your success.
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