A financial metric that measures how many times a company sells and replaces its entire stock of goods during a specific period, typically calculated by dividing cost of goods sold by average inventory value. This metric reveals the efficiency of inventory management and demand forecasting accuracy within warehouse operations.
High inventory turnover indicates strong sales performance and efficient stock management, reducing carrying costs and minimizing the risk of obsolete inventory. Low turnover may signal overstocking, poor demand planning, or slow-moving products that tie up valuable warehouse space and working capital.
For example, an electronics retailer with $1 million in annual cost of goods sold and $200,000 in average inventory achieves a turnover ratio of 5, meaning they cycle through their entire stock five times per year. Warehouse managers use this metric to optimize storage allocation, adjust reorder points, and identify products requiring promotional strategies or discontinued status.
