Inventory turnover is a great indicator of how a company is handling its inventory. The inventory turnover ratio, also known as the stock turnover ratio, is an efficiency ratio that measures how efficiently inventory Inventory Inventory is a current asset account found on the balance sheet, consisting of all raw materials, work-in-progress, and finished goods that a company has accumulated. Financial ratios measure a company's financial health and its cost efficiencies, profitability and ability to grow sales. The Inventory Turnover Ratio . Inventory turnover is a measure of the number of times inventory is sold or used in a given time period such as one year Calculation: Cost of goods sold / Average Inventory, or in days: 365 / Inventory turnover. Inventory turnover ratio meaning It measures how many times a company has sold and replaced its inventory during a certain period of time. The inventory turnover ratio is an important financial ratio that indicates a company's past ability to sell its goods. Inventory Turnover ratio is an inventory metric that you use to assess the efficiency of your inventory management and buying. Formula: Inventory turnover ratio is computed by dividing the cost of goods sold by average inventory at cost. The inventory turnover ratio measures how often a company moves its inventory out of ⦠Number of U.S. listed companies included in the calculation: 2082 (year 2019) The inventory turnover ratio is an important financial ratio for many companies. A higher inventory turnover ratio usually indicates that a business has strong sales compared to a company with a lower inventory turnover ratio. If an investor wants to check how well a company is managing its inventory, she would look at how higher or lower the inventory turnover ratio of the company is. Similar to other activity ratios, even this ratio indicates how efficient is the company in generating revenue by utilizing its resources. The inventory turnover ratio is a formula that makes it easy to figure out how long it takes for a business to sell through its entire inventory. Inventory turnover ratio is one of the most important activity ratio that is more relevant in the case of manufacturing companies. Inventory turnover ratio (ITR) is an activity ratio and is a tool to evaluate the liquidity of companyâs inventory. Of all the asset-management ratios, it gives the business owner some of the most important financial information, by showing how many times the company turns its inventory ⦠Usually the comparison is done between: The companyâs own inventory turnover ratio for previous years. More about inventory turnover (days). A high turnover ratio is desirable for Walmart because of its retail business, where high inventory turnover ratios are observed. High Inventory Turnover. Converting inventory into cash is critical for a company to pay its obligations when they are due. Inventory is a balance sheet item that tracks goods available for sale. Inference: Walmart turned over its inventory 8.75 times in FY2019 to generate sales corresponding to the cost of goods sold, equating $385,301. Interpretation of Inventory Turnover Ratio. Dividing Cost of goods sold by the average inventory, We get a stock turnover of 8.75. Like all ratios, inventory turnover ratio also needs the same context for the numbers to become meaningful. Inventory turnover (days) - breakdown by industry. The inventory turnover ratio is five, meaning that the business turned over its inventory five times during this year. Definition of Inventory Turnover Ratio. Here, the inventory turnover ratio is: 100,000/50,000 = two inventory turns annually, meaning it takes about 180 days for a business to record sales and replace its inventory. 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