What does "inventory turnover" measure?

Inventory turnover is a key performance indicator that measures the rate at which inventory is sold and replaced over a specific period. This metric is crucial for businesses as it provides insight into various aspects of inventory management, including demand, sales performance, and purchasing efficiency. A higher inventory turnover ratio indicates that a company is selling goods quickly and may point to effective sales strategies or a well-managed supply chain. Conversely, a low turnover rate may suggest overstocking, slowing sales, or inefficiencies in inventory management.

This concept helps managers make informed decisions about inventory levels, purchasing strategies, and cash flow, making it a vital measure in logistics and supply chain management. The focus on the rate of sale and replenishment underscores the importance of both sales performance and inventory management in maintaining operational efficiency.