An indicator of how frequently a company sells and replaces its inventory over the course of a year is called annual inventory turnover. The computation involves dividing the average inventory value by the cost of goods sold (COGS). While a low turnover rate can be a sign of overstocking or slow sales, a higher turnover rate usually denotes effective inventory management and robust sales. Businesses can use this KPI to find ways to improve cash flow and cut down on excess inventory.
