Meaning and calculation
In a common analytical calculation, inventory turnover equals cost of sales divided by average inventory. The ratio describes how intensively inventory resources are used during a period. The average matters because the balance on the reporting date alone may be unusually high or low.
If annual cost of sales for an assumed store is 600 thousand roubles and average inventory is 150 thousand, turnover is 4 for the year. This is a calculated ratio, not a claim that every particular item was sold exactly four times or remained in stock for the same length of time.
Limits of interpretation
An increase may reflect better sales organization, but it may also indicate a shortage of goods. A decline may result from seasonal purchasing, a broader product range or the accumulation of illiquid inventory. For comparison, check the accounting valuation of inventory, the business structure and the numerator formula. Substituting revenue for cost of sales creates a different measure and harms comparability. Related reading: [inventory and depreciation](/guides/inventory-and-depreciation/), [inventory](/glossary/zapasy/) and [inventory valuation methods](/glossary/metody-ocenki-zapasov/).