Management Glossary

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inventory turnover

A ratio relating annual sales to average finished goods inventory. It is calculated as:

number of units of product x sold annually
average units of product x in inventory

The inventory turnover value tells you how many times the average inventory volume is sold in a year. A low number, particularly a number less than one, is a sign of possible problems as it likely indicates that the company is keeping too much inventory on hand — inventory that it usually has to finance until sold.

Contributed by: Managerwise Staff

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