The inventory turnover ratio is calculated as the Cost of goods sold of a company divided by average inventory over the past 2 financial years. Inventory turnover measures how many times in a given period a company is able to replace the inventories that it has sold.

A slow turnover implies weak sales and possibly excess inventory, while a faster ratio implies either strong sales or insufficient inventory. High volume, low margin industries such as retailers and supermarkets tend to have the highest inventory turnover.