How is 'inventory turnover' defined?

Inventory turnover is defined as a measure of how many times inventory is sold and replaced over a specific period. This metric is crucial for businesses as it indicates the efficiency of inventory management and how well a company converts inventory into sales. A higher inventory turnover rate suggests that a company is selling goods quickly and efficiently, which can lead to lower holding costs and better cash flow. It reflects both sales performance and inventory management strategies, allowing businesses to make informed decisions on purchasing and production practices. Understanding this concept is essential for optimizing supply chain performance and maintaining a competitive edge in the market.