cashflow
Inventory Turnover
How many times you sell through your inventory in a year. High turnover = efficient inventory.
Definition
Inventory turnover is COGS divided by average inventory, measuring how many times inventory is sold and replaced in a year. High turnover (8-12x for fast-moving retail) means inventory moves fast and ties up little capital. Low turnover (2-3x) means inventory sits, tying up cash and creating obsolescence risk. Days Inventory Outstanding (DIO) - the inverse - measures the same thing in days. For inventory-heavy businesses, inventory turnover is one of the highest-leverage operating metrics: every day you cut DIO releases working capital.
In your business
- →Track inventory turnover monthly - sliding turnover means inventory is piling up
- →Cut SKUs that aren't moving - they tie up cash and shelf space
- →Service businesses don't have inventory - skip this metric