Question 1

What is the inventory turnover ratio?

Accepted Answer

The inventory turnover ratio measures how many times a business sells and replaces its inventory during a specific period. It is calculated by dividing the Cost of Goods Sold (COGS) by the Average Inventory value. A higher ratio generally indicates efficient inventory management.

Question 2

What is a good inventory turnover ratio?

Accepted Answer

A good inventory turnover ratio varies by industry. Generally, a ratio between 4 and 6 is considered healthy for most retail businesses. Grocery and perishable goods typically have higher ratios (10–20), while luxury goods or heavy equipment may have lower ratios (1–3). Compare your ratio against industry benchmarks for the most relevant assessment.

Question 3

How can I improve my inventory turnover ratio?

Accepted Answer

To improve inventory turnover, focus on demand forecasting to avoid overstocking, implement just-in-time ordering, run promotions on slow-moving items, negotiate smaller and more frequent deliveries with suppliers, discontinue products that consistently underperform, and use inventory management software to track stock levels in real time.

Question 4

What does days to sell inventory mean?

Accepted Answer

Days to sell inventory (also called Days Sales of Inventory or DSI) indicates the average number of days it takes to sell your entire inventory. It is calculated as 365 divided by the inventory turnover ratio. A lower number means faster inventory movement, while a higher number suggests inventory is sitting unsold for longer periods.

Inventory Turnover Calculator

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