Inventory turns definition

Inventory turns is a measure of the rate with which capital used to buy or make inventory moves through the company. It is calculated by dividing the Cost of Goods Sold (for a given period) by the Average Inventory (for that same period). The resulting number is often normalized to an annual basis and expressed as the number of turns per year.

An annual inventory turn of 1 indicates the amount of inventory owned was replaced only once in 12 months. A turn rate of 2 indicates the business rotated their inventory investment twice in 12 months.

Capital commited to inventory is an investment, and the faster your inventory turns determines whether it produces a higher return on that investment.