An efficiency ratio that measures how many times a company sells and replaces its inventory over a period, calculated by dividing cost of goods sold by average inventory. Higher turnover indicates more efficient inventory management.
Developed in the early 20th century with the rise of mass production and retail chains, building on basic inventory management principles. The 'turnover' concept reflects the cyclical nature of converting inventory to sales and back to inventory.
Inventory turnover is like measuring how fast a restaurant goes through its ingredients - the faster the better, because slow turnover means either your food is getting stale or you're tying up too much money in the kitchen! Amazon's obsession with inventory turnover is one reason they can operate on razor-thin margins while still generating massive cash flows.
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