The Formula Inventory Turnover Ratio is a business metrics that allows companies to determine how well their inventory is managed. It helps measure how efficiently the company is selling its merchandise and, in turn, its overall performance. To calculate this ratio, you take the cost of goods sold for a period then divide it by the average inventory amount during the same period. The higher the number, the better the company is performing. Knowing the turnover rate can help businesses make more informed decisions about ordering stock and can show them whether they are holding too much or too little inventory.