- What is inventory turnover ratio?
- Inventory Turnover = Annual COGS / Average Inventory. It shows how many times a business sells through and replaces its inventory in a year. Higher turnover generally means better cash flow and less money tied up in unsold stock.
- What is days sales of inventory (DSI)?
- DSI = 365 / Inventory Turnover. It tells you how many days, on average, inventory sits before being sold. A DSI of 45 means inventory turns over every 45 days. Lower DSI is generally better for cash flow; very low DSI may signal stockout risk.
- What is a good inventory turnover ratio?
- Benchmarks vary by industry. Grocery and fast-moving consumer goods may turn 20 to 30 times per year. Apparel and electronics typically see 4 to 8 turns. Furniture and heavy equipment may turn only 2 to 4 times. Compare against industry averages rather than a single standard.
- Why might a very high turnover ratio be a problem?
- Extremely high turnover can signal stockouts: you are selling inventory faster than you can replenish it, potentially losing sales when items are out of stock. It may also mean your safety stock is too thin to absorb demand spikes or supply chain delays.
