Inventory Turnover Rate

One of the many ratios used in business is the inventory turnover rate. The inventory turnover rate is often misunderstood, miscalculated and misused. The traditional business course in academia explains that ideally the inventory turnover ratio (rate) is the highest number possible. This higher value means the business operation is selling the product as fast as possible. This in turn signifies that the business is getting the best return on its financial investment into inventory. But this is not always good business. As the reader gains insight into inventory turnover, you’ll begin to appreciate a good understanding and application of the inventory turnover rate.

The goal of this article is to educate the reader in 1) understanding the fundamentals of inventory turnover, 2) how to properly calculate the rate and 3) how to apply the formula in business.

The formula is stated as:

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