Inventory Turnover

What is inventory:

• Inventories are the raw materials, work-in-progress and finished goods held by a business to enable production and meet customer demand

Examples of Inventory:

• Raw Materials and Components

• Work in Progress

• Finished Goods

What is Inventory Turnover:

• How many times does a business replace its inventory each year (by turning it into sales)

Inventory Turnover:

• Cost of Goods Sold (£)/ Average Inventories Held (£)

Interpreting the Inventory Turnover Figure:

• Look for changes from one year to another (and compare with other similar businesses)

• A fall in inventory turnover might suggest a buildup of slow-moving or obsolete inventory