Inventory Turnover Ratio.

 Inventory turnover ratio is a financial metric that measures how quickly a company sells its inventory and replaces it with new stock. The formula for calculating inventory turnover ratio is as follows:

Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory

Where:

• Cost of Goods Sold (COGS) is the cost of producing or purchasing the products sold by the company during a particular period.
• Average Inventory is the average value of inventory held by the company during the same period.

The inventory turnover ratio can be calculated on a monthly, quarterly, or annual basis, depending on the company's reporting period.

A high inventory turnover ratio indicates that the company is selling its inventory quickly, which can be a sign of good performance. On the other hand, a low inventory turnover ratio suggests that the company is not selling its inventory as quickly, which could indicate poor performance.

A low inventory turnover ratio may also mean that the company is holding too much inventory, which ties up capital that could be used for other purposes. A high inventory turnover ratio, on the other hand, may suggest that the company is not holding enough inventory, which could lead to stockouts and lost sales.

It is important to note that the inventory turnover ratio should be interpreted in the context of the industry in which the company operates. Different industries have different norms and standards for inventory turnover ratios, and a company's ratio should be compared to those of its peers to gain meaningful insights.