Inventory Turnover – The bigger the numerical ratio the better.
This is one of the Liquidity & Efficiency Ratios in which efficiency shows how effective a company is with its assets.
Calculate this ratio using the below equation. Values in the equation can be acquired from the Balance Sheet (with the exception of “Cost of Goods Sold (COGS)” which is found in the Income Statement).
Equation:
Inventory Turnover = (COGS) ÷ (Inventory)
Equation results indicate the average times per year a company goes through its inventory.
NOTE: It’s expensive for a company to hold Excess Inventory.