Inventory Turns

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This is calculated by dividing the cost of goods sold by the average inventory in a given period.

Inventory Turns, also commonly called stock turns, stock turnover or just turns is a business management term referring the the number of times goods are sold or used in a year.

The formula for calculating is as follows:

Image:Inventory Turn.png

Items with a lower inventory turn have higher retention costs. For example, compared to an item with a one for inventory turn, another item with an inventory turn of three would have a lower holding (retention) cost. Increasing inventory turns is generally sought after for three major cost related reasons:

  • An item with a higher inventory turn has a lower holding cost. Holding costs include the cost of rent,warehousing fees, lost due to theft, and maintenance fees needed to keep the good.
  • Reducing holding costs will in turn raise net income and profits.
  • Items which turn over more quickly are much more responsive to customer needs and wants which help to replace obsolete items in the market.
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