Inventory purchases cost money, and if you sell items too slowly, you aren’t turning that inventory into revenue any time soon. You want to be able to answer questions like: Additionally, it helps businesses to identify problems such as stockouts, excess inventory or slow-moving products. Inventory management helps businesses make informed decisions about how much inventory they need to keep on hand and how quickly they should replace it. It should be part of your overall effort to track performance and identify areas for improvement. The inventory turnover ratio is a valuable metric for businesses. The calculation of inventory turnover ratio is essential for a business to track its performance and can help identify areas for improvement. stock turnover ratio) measures the number of times a business sells and replaces its inventory over a certain period.Ī higher turnover ratio means that a company is selling more and replacing its inventory faster.
The Inventory Turnover Ratio, or ITR (a.k.a. Here’s why inventory turnover ratio is important and how to calculate it. If your small business has inventory, knowing how fast it is selling will help you better understand the financial health of your business.
