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Inventory Turnover Ratio
Definition
A measure of how efficiently inventory is sold and replaced over a defined period, indicating how quickly products move through the supply chain. Higher turnover suggests strong sales and efficient inventory management, while lower turnover may indicate overstock or weak demand.
How It's Calculated
Cost of Goods Sold (COGS) ÷ Average Inventory
Example
A snack brand has annual COGS of $5 million and average inventory of $1 million, resulting in an inventory turnover ratio of 5, meaning inventory is sold and replenished five times per year.
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