What is inventory turnover?
Inventory turnover is a measure of the stock volume in relation to sales. Excessive inventory is not good: it costs money. Money because it has been purchased and can sit “on the shelf” for too long. Money because storage facilities are required, and warehouses are simply expensive. Furthermore, goods that sit for too long can spoil or become obsolete. The rule of thumb that high inventory is “bad” does not always hold true. Some companies derive their right to exist from the fact that they can always supply certain goods. In that case, however, the risk of obsolescence must be compensated by a higher margin on the product.
