Average Inventory Turnover Ratio is a measure of how many times a company’s total inventory has been replaced during the year. It is calculated by dividing the cost of goods sold (COGS) by the average inventory for the year. This ratio can provide insights into how efficiently a business is managing its inventories, helping it to identify areas where costs could be reduced or efficiency could be improved. With a higher turnover rate, businesses have more opportunities to increase their profits and improve their cash flow. By using this ratio, companies can make decisions on how much inventory they should carry in order to maintain the optimal stock level for their operations.