Inventory Turnover

How many times a company sells and replaces its inventory in a period — a measure of inventory efficiency.

Part of the Profitability & Quality course · Lesson 15 of 19

Formula

Inventory turnover = Cost of goods sold / Average inventory ; Days inventory = 365 / Inventory turnover

What it is

Inventory turnover counts how many times a company sells through and restocks its inventory over a period, usually a year. It is cost of goods sold divided by average inventory. A higher number means inventory moves quickly off the shelves.

Why it matters

Fast-moving inventory ties up less cash and lowers the risk of obsolete or marked-down goods, which supports margins and working capital. Very low turnover can signal weak demand or overstocking, while unusually high turnover may mean stock-outs and lost sales. It directly feeds the cash conversion cycle.

How it's calculated

Divide cost of goods sold by average inventory; days inventory outstanding then equals 365 divided by the turnover figure.

How Quintarthai uses it

Cost of goods sold and inventory for this ratio are on the Financials tab of a company deep-analysis page.

Cross-border note. Watch the inventory accounting method: US filers may use LIFO, which is not permitted under IFRS used by Canadian firms, so LIFO-versus-FIFO differences can skew cross-border comparisons.

FAQ

Should I use cost of goods sold or revenue in the numerator?

Cost of goods sold is the correct numerator because inventory is carried at cost, so this matches like with like. Using revenue overstates turnover because revenue includes the profit margin.

Is higher inventory turnover always better?

Usually it signals efficiency, but turnover that is too high can mean the company keeps too little stock and loses sales to stock-outs. The ideal level varies by industry and business model.

See Inventory Turnover on a real company

Open any stock in Quintarthai and explore it live across the screener and company pages.

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