Inventory turnover.
aka stock turnover, inventory turns, stock turn
How fast the stuff on your shelves turns back into money.
What it actually means
Inventory turnover is a measure of how many times a business sells and replaces its stock over a period, usually a year. It is commonly calculated as cost of goods sold divided by average inventory. A higher number generally means stock moves quickly; a lower number means goods sit on shelves or in warehouses for longer.
Here is the maths. Say a shop's cost of goods sold for the year is 400,000, and it holds on average 100,000 of stock. Turnover is 4, meaning it cycles through its stock four times a year. Many teams also flip this into days of inventory: divide 365 by the turnover, and you get roughly 91 days that a typical item sits before it sells. Using average inventory (start plus end of period, divided by two) smooths out seasonal swings. Some businesses use sales instead of cost of goods sold in the formula, which gives a higher number, so check which version someone means before comparing figures.
The nuance: higher is not automatically better. Very high turnover can mean you are running too lean and running out of stock, losing sales to empty shelves. Very low turnover ties up cash in boxes, risks items going out of date, and adds storage costs. What counts as "good" depends heavily on the industry. A grocery store with fresh food should turn stock far faster than a furniture or jewelry business, so compare against similar companies, not a universal number. It also helps to look at turnover by product, because a strong overall figure can hide a few lines that barely sell at all.
Where you'll hear it
Turnover on the winter range dropped to two. We're sitting on about six months of coats, so let's slow reorders and plan a promotion.
Translation: the coats are not selling fast enough, too much cash is stuck in them, and buying more would make it worse.
Also in supplier negotiations about smaller, more frequent deliveries, in working capital reviews where finance asks why cash is tied up in stock, in seasonal planning before big sales periods, and in investor analysis of retailers and manufacturers.
The pop-culture version
A popular food truck buys fresh ingredients every morning and sells out by evening. Its stock turns over almost daily. Cash goes out, comes back the same day, and nothing goes stale. There is barely any storage to pay for, either.
Down the street, a gift shop still has last year's holiday mugs on the shelf. The shop paid for them months ago. That money is stuck in mugs, the shelf space is taken, and the designs look more dated every week.
Inventory turnover measures that difference. But the food truck has a risk too: on a busy day it runs out early and turns hungry customers away. The goal is stock that moves fast without leaving empty shelves.
The practical rule: watch turnover alongside stockouts. If turnover is falling, cash is getting stuck; if it is high but customers keep finding empty shelves, you are cutting too close.
Say it like you mean it
“Our turnover is about eight a year, which is in line with similar retailers in our category.”
It gives the number and compares it with a fair benchmark.“Our turnover is the highest it's ever been, so our stock levels must be perfect.”
Very high turnover can also mean frequent stockouts and lost sales.You will also hear "days inventory outstanding" or DIO, the same idea expressed in days, and "dead stock", items that have not sold for so long they may need to be discounted heavily or written off.
An explainer on inventory turnover for product businesses, covering the formula, days of inventory, industry benchmarks and balancing fast turns against stockouts.
Decoded next
Decoded by the Kurums editorial team. Kurums Decoded translates the language of business for people who are new to it. Definitions are kept short on purpose; the serious version above goes deep. Nothing here is financial, legal or career advice.
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