Inventory Turnover Ratio

Determines whether a firm holds excessive inventories or is selling its inventory slowly compared to other firms in the industry. Inventory turnover like all activity ratios, are only meaningful when compared to industry averages. An inventory turnover ratio of 6 might be good for a car deal but would be horrible for a diary company.

Inventory Turnover = Sales/Inventory of Finished Goods
Average age of inventory = 360/Inventory Turnover