Measures how many times stock turns over in a year, as the cost of goods sold ÷ the average inventory. A higher figure means the same sales are made on less stock. The number of days of stock held is also shown.
This measures how many times stock is replaced over a year. The less stock needed to make the sales, the higher it runs.
The average inventory is the mean of the opening and closing figures. The numerator is the cost of goods sold rather than sales, because stock is carried at cost. Using sales would inflate the figure by the profit margin.
Dividing 365 by the turnover gives how many days of stock is on hand. A turnover of 12 is 30 days. The days figure is easier to picture: it says there is a month of stock in the building.
An annual cost of goods sold of 24,000,000, with opening stock of 1,800,000 and closing stock of 2,200,000. The average is 2,000,000, so the turnover is times and the days of stock .
A high turnover uses capital efficiently, but pushed too far it means running out. Sales lost to empty shelves never show up in the figures, so chasing turnover alone hides them. The right level varies enormously by trade: fresh food and jewellery are orders of magnitude apart.
This averages just two points in the year. A business with a strong season is better served by averaging monthly figures.