Turnover

In accounting, the Inventory turnover is a measure of the number of times inventory is sold or used in a time period such as a year. The equation for inventory turnover equals the cost of goods sold divided by the average inventory. Inventory turnover is also known as inventory turns, stock turns, turns, and stock turnover.

A low turnover rate may point to overstocking, obsolescence, or deficiencies in the product line or marketing effort. However, in some instances a low rate may be appropriate, such as where higher inventory levels occur in anticipation of rapidly rising prices or shortages. A high turnover rate may indicate inadequate inventory levels, which may lead to a loss in business.

The purpose of increasing inventory turns is to reduce inventory for three reasons.

- Increasing inventory turns reduces holding cost. The organization spends less money on rent, utilities, insurance, theft and other costs of maintaining a stock of good to be sold.

- Reducing holding cost increases net income and profitability as long as the revenue from selling the item remains constant.

- Items that turn over more quickly increase responsiveness to changes in customer requirements while allowing the replacement of obsolete items.

Asset turnover is a financial ratio that measures the efficiency of a company's use of its assets in generating sales revenue or sales income to the company.

Customer turnover, the rate at which a business loses customers, sometimes called the churn