Inventory turnover is a ratio used to measure the number of times on average that a business’s inventory is sold or used in a given period. It looks at how efficiently a company is utilizing their inventory to generate revenue. To calculate inventory turnover, you need to divide the cost of goods sold by the average inventory during the year. Expressed as a formula, it looks like this: Inventory Turnover = Cost of Goods Sold / Average Inventory. High inventory turnover rates can indicate that a business is successfully managing its inventory and generates strong sales, while low inventory turnover could point to underperforming sales or excessive stock levels.