Inventory turnover measures how many times inventory is sold and replaced over a period, commonly using cost of goods sold divided by average inventory at cost.
How it works in retail
It helps assess how quickly money invested in stock moves through the business. The period and averaging method need to be consistent.
A retail example
Annual cost of goods sold of $240,000 divided by average inventory at cost of $60,000 gives four inventory turns for the year.
What to keep in mind
A high turnover rate can coexist with stockouts or low margins. A simple opening-and-closing average may be unrepresentative for a highly seasonal business.
Sources & further reading
NRF: Retail inventory management guide
Examples are illustrative. Terminology and measurement conventions can vary by business and market.