Inventory Turnover
A measure of how many times a business sells and replaces its inventory over a given period, calculated by dividing cost of goods sold by average inventory value.
A higher inventory turnover generally indicates strong sales relative to inventory levels, while a low turnover can signal overstocking or slow-moving product, both of which affect how much cash is tied up in inventory at any given time.
Lenders evaluating inventory financing or a business’s overall cash flow health often look at inventory turnover alongside the cash conversion cycle, since slow-turning inventory ties up working capital longer.
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