Low Inventory Turnover Definition
Low inventory turnover is a metric used to measure how quickly a company sells its inventory. A low inventory turnover ratio indicates that a company is not selling its products as quickly as it could be, which can tie up working capital and lead to missed sales opportunities.
There are a few different ways to calculate inventory turnover, but the most common is to divide the cost of goods sold (COGS) by the average inventory for the period. This will give you the number of times your inventory turns over in a given period.
For example, if your COGS for the year was $100,000 and your average inventory for the year was $20,000, your inventory turnover would be 5 ($100,000/$20,000). This means that on average, you sold all of your inventory five times during the year.
A high inventory turnover ratio is generally seen as a good thing, as it indicates that a company is efficient at selling its products and doesn’t have too much excess inventory sitting around tying up working capital. However, there can be such thing as too high of an inventory turnover ratio, which can indicate that a company isn’t giving itself enough time to sell products or may be selling them below cost just to get rid of them.
The idealinventory turnover ratio will vary by industry, so it’s important to compare a company’s ratio to others in its industry to get a better
