Inventory Turnover

Inventory turnover counts how many times a company sells through its entire stock in a year: cost of goods sold divided by average inventory. A turnover of 6 means the shelves clear out six times annually, roughly every 61 days.

Fast turnover is capital efficiency — less money parked in warehouses per dollar of sales, less exposure to fashion cycles, spoilage, and obsolescence. But the metric rewards different things in different models: a discount grocer at 15x and a luxury jeweler at 1.5x can both be excellent businesses, because the jeweler's fat gross margin pays for the slow shelf.

Falling turnover with rising gross margin can flag trouble ahead: the company is holding price while product piles up, and the correction usually arrives as one big markdown quarter.