Inventory turnover ratio equation is a key tool for business owners and investors to understand the efficiency of inventory management. It tracks the number of times during a period that a company’s inventory is completely sold and replaced. The equation is calculated by dividing the cost of goods sold (COGS) with the average inventory cost. This figure helps companies determine how quickly they are selling their products, allowing them to adjust their strategies to increase sales or reduce inventory costs. By understanding this ratio, businesses can develop optimal strategies and monitor efficiency in order to maximize profit.