Inventory turnover, or the inventory turnover ratio, measures how many times a company sells and replaces its inventory during a period. It divides cost of goods sold by average inventory. A higher ratio means inventory is moving quickly — the company is selling product efficiently. A lower ratio may indicate overstocking, slow sales, or obsolescence risk.
This metric is critical for retail, manufacturing, and distribution businesses where inventory is a major asset. For companies that do not carry physical inventory (software, services), this metric is not applicable.
Inventory Turnover = Cost of Goods Sold (TTM) / Average Inventory
GeminIQ divides TTM COGS by the average of current-period and year-ago inventory, sourced from SEC filings.
A: Grocery stores and fast-moving consumer goods companies may have turnover above 12 (inventory cycles once a month). General retailers typically range from 4 to 8. Heavy manufacturing may be 2 to 4. The key is comparing against industry peers and tracking trends — declining turnover may signal demand weakness.
A: Days Inventory Outstanding (DIO) is simply 365 divided by inventory turnover. It converts the turnover ratio into the average number of days inventory sits before being sold. Both metrics tell the same story in different formats.
A: The numerator (COGS) can differ if the platform uses a different line item — some use cost of revenue, which may include service delivery costs, while COGS is specifically the cost of goods. Inventory definitions can also vary if the aggregator reclassifies items. GeminIQ uses the as-filed values for both.
A: Add the inventory balance at the start of the period to the balance at the end and divide by two. GeminIQ uses the current period and the same period one year earlier, which matches the twelve months of cost of goods sold in the numerator.
A: The company sold and replaced its average inventory one and a half times over the year, so goods sat in inventory for about 243 days (365 divided by 1.5). That is normal for aircraft, heavy equipment, or luxury goods, but would signal overstocking at a grocer or apparel retailer.
A: Yes, as revenue divided by average inventory, but the result is higher and not comparable to the standard ratio. Inventory is carried at cost, so dividing it into revenue mixes a cost figure with a figure that includes the profit markup. Use cost of goods sold whenever the company reports it.
Further Reading: Retail Sector Stock Analysis
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