The short answer: inventory turnover measures how many times you sell and replace your stock in a period. It’s calculated as cost of goods sold ÷ average inventory. A higher turnover generally means your cash isn’t sitting idle on shelves — but too high can mean you’re constantly running out.
How to calculate it
Inventory turnover = Cost of goods sold ÷ Average inventory value. For example, if your cost of goods sold for the year is 1,200,000 and your average stock value is 200,000, your turnover is 6 — you sold through your stock roughly six times that year.
What the number tells you
- Low turnover — stock is moving slowly; cash is tied up and dead-stock risk is high.
- High turnover — stock sells quickly and cash keeps cycling, but very high figures can mean frequent stockouts and lost sales.
There’s no universal “good” number — it varies hugely by industry. Fresh food turns over far faster than furniture. The useful move is to track your own ratio over time and by product category.
How to improve it
- Clear slow movers so they stop dragging the average — see reducing dead stock.
- Buy to demand using sales history, not gut feel or supplier deals.
- Use reorder points so best-sellers restock automatically — see reorder points.
- Promote fast, focus range on what actually sells.
Track it automatically
You need accurate cost and stock data to calculate turnover reliably. RushFlow captures both as you trade and surfaces stock movement and value, so you can watch turnover by product and category. See the live demo.