Inventory Turnover Ratio
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Category:  
Strategic

Measures how often inventory is sold and replaced during a given period, showing the efficiency of inventory management.

What it Measures ?

How often we use up and replace our stock.

Relevant StakeHolders 

Inventory Manager, Finance Controller

Why it Matters ?

Tracks inventory management efficiency.

In-depth Use Case / Real-world Example

Inventory Turnover Ratio is calculated by dividing the cost of goods sold (COGS) by the average inventory value. If a company has COGS of ₹1,000,000 and an average inventory value of ₹200,000, the ratio is 5, meaning the company sells and replaces its inventory 5 times a year. A high turnover ratio indicates effective inventory management and good product demand, while a low ratio may suggest overstocking or slow-moving goods. Manufacturers with a high turnover can free up cash flow and reduce storage costs. Tracking this KPI helps ensure that production isn’t overstocking items that aren’t selling.

KPI Definition

Business Value

Movement Direction

Sample Formula

Cost of Goods Sold / Average Inventory Value

Should Aim For
1
2
3
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