{"id":14396,"date":"2026-05-27T07:42:14","date_gmt":"2026-05-27T07:42:14","guid":{"rendered":"https:\/\/lemonn.co.in\/blog\/glossary\/inventory-turnover-ratio\/"},"modified":"2026-05-27T07:42:14","modified_gmt":"2026-05-27T07:42:14","slug":"inventory-turnover-ratio","status":"publish","type":"glossary","link":"https:\/\/lemonn.co.in\/blog\/glossary\/inventory-turnover-ratio\/","title":{"rendered":"Inventory Turnover Ratio"},"content":{"rendered":"

Inventory turnover ratio<\/a> is a financial metric that measures how many times a company’s inventory is sold and replaced over a given period. It indicates how efficiently a company manages its stock and converts inventory into sales.<\/p>\n

What Is Inventory Turnover Ratio?<\/h2>\n

Inventory Turnover = Cost of Goods Sold \/ Average Inventory<\/p>\n

Or alternatively:
\nInventory Turnover = Revenue<\/a> \/ Average Inventory<\/p>\n

Using COGS in the numerator is more precise because inventory is valued at cost.<\/p>\n

**Average Inventory** = (Opening Inventory + Closing Inventory) \/ 2<\/p>\n

A high turnover ratio means inventory is moving quickly (efficient); a low ratio means stock is sitting longer (potential overstock or slow sales).<\/p>\n

Days Inventory Outstanding (DIO)<\/h2>\n

DIO = 365 \/ Inventory Turnover<\/p>\n

DIO converts the ratio into days, showing the average number of days inventory is held before being sold.<\/p>\n

Industry Benchmark<\/a>s<\/h2>\n

| Industry | Turnover (approx) | DIO |
\n|———|—————–|—–|
\n| Supermarkets\/FMCG | 15-25x | 15-25 days |
\n| Automobiles | 5-10x | 36-73 days |
\n| Pharma | 4-8x | 45-90 days |
\n| Jewellery | 2-4x | 90-180 days |
\n| Aerospace | 1-2x | 180-365 days |<\/p>\n

Why Inventory Turnover Matters<\/h2>\n

– High turnover reduces storage costs and obsolescence risk
\n– Low turnover may signal weak demand, product issues, or poor procurement planning
\n– Very high turnover could indicate stock-outs (not keeping enough inventory to meet demand)
\n– In working capital analysis, inventory is a key driver of cash cycle length<\/p>\n

Practical Example<\/h2>\n

A consumer electronics company has COGS of Rs 1,200 crore and average inventory of Rs 200 crore. Inventory turnover = 1,200 \/ 200 = 6x. DIO = 365 \/ 6 = 61 days. This means the company sells and replaces its inventory approximately every 2 months.<\/p>\n

Key Takeaways<\/h2>\n

– Inventory turnover = COGS \/ Average Inventory; measures how efficiently stock is converted to sales
\n– Higher turnover is generally better, indicating fast-moving goods and efficient procurement
\n– DIO (Days Inventory Outstanding) = 365 \/ Turnover; shows average holding period in days
\n– Compare turnover within the same industry; perishable goods companies have very high turnover, capital goods have low
\n– Declining inventory turnover may signal demand weakness or overstocking<\/p>\n","protected":false},"excerpt":{"rendered":"

Inventory turnover ratio is a financial metric that measures how many times a company’s inventory is sold and replaced over a given period. It indicates how efficiently a company manages its stock and converts inventory into sales. What Is Inventory Turnover Ratio? Inventory Turnover = Cost of Goods Sold \/ Average Inventory Or alternatively: Inventory […]<\/p>\n","protected":false},"author":3,"featured_media":0,"menu_order":0,"template":"","meta":{"_uag_custom_page_level_css":"","footnotes":""},"class_list":["post-14396","glossary","type-glossary","status-publish","hentry"],"blocksy_meta":[],"uagb_featured_image_src":{"full":false,"thumbnail":false,"medium":false,"medium_large":false,"large":false,"1536x1536":false,"2048x2048":false,"web-stories-poster-portrait":false,"web-stories-publisher-logo":false,"web-stories-thumbnail":false},"uagb_author_info":{"display_name":"Team Lemonn","author_link":"https:\/\/lemonn.co.in\/blog\/author\/ashu\/"},"uagb_comment_info":0,"uagb_excerpt":"Inventory turnover ratio is a financial metric that measures how many times a company’s inventory is sold and replaced over a given period. It indicates how efficiently a company manages its stock and converts inventory into sales. What Is Inventory Turnover Ratio? Inventory Turnover = Cost of Goods Sold \/ Average Inventory Or alternatively: Inventory…","_links":{"self":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/14396","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary"}],"about":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/types\/glossary"}],"author":[{"embeddable":true,"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/users\/3"}],"version-history":[{"count":0,"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/glossary\/14396\/revisions"}],"wp:attachment":[{"href":"https:\/\/lemonn.co.in\/blog\/wp-json\/wp\/v2\/media?parent=14396"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}