Inventory turnover: what it is and how to calculate
Inventory turnover is how many times, in a period, stock is fully sold and replaced — the higher the turnover, the less idle capital and the lower the risk of expiry loss.
How to calculate
Turnover = period COGS ÷ average inventory. High turnover means ingredients come in and out fast; low turnover means money sitting still and loss risk, especially with perishables.
- Turnover = COGS ÷ average inventory
- High = less idle capital
- Low = expiry/loss risk
How to improve turnover
Buy in quantities matched to demand, use FIFO/FEFO and track low-turnover items in the inventory report. Less idle stock improves cash flow and COGS.
FAQ
What's the ideal inventory turnover?
It depends on the item: perishables need high turnover (days); dry goods tolerate lower. The point is to avoid idle stock and losses.
Does inventory turnover affect COGS?
Yes: low turnover raises expiry losses, increasing COGS. Good turnover reduces waste.