The Inventory Turnover ratio is an efficiency ratio used to calculate the number of times inventory is sold and replaced in given time period. It is calculated by taking the Cost of Goods Sold and dividing this by the Average Inventory. COGS is used instead of sales because sales are recorded at market value, while inventories are usually recorded at cost. The Inventory Turnover ratio is measured on a TTM basis.
The Inventory Turnover ratio measures how well a company manages its inventory and should be compared against industry averages. A high ratio indicates that the company manages its inventory well by purchasing the correct amount of stock, and/or selling it quite quickly. A low ratio points to the opposite, with excess stock and/or poor sales highlighting inefficient inventory management.
The formula is: Cost of Goods Sold / Average Inventory
This ratio is measured on a [TTM] (/learn/our-data/understanding-ttm-trailing-twelve-month-462843 basis.