Inventory turnover measures how quickly inventory is sold, calculated as COGS ÷ average inventory (beginning + ending inventory ÷ 2). For Target: COGS = $51,125 million, average inventory = $8,483 million, turnover = 6.03 times. Days to sell = 365 ÷ 6.03 = 60.5 days.
Higher turnover (shorter days) indicates faster cash conversion, appealing to creditors (e.g., Waller Co.’s 100 days suggests slower turnover).
Identifies slow-moving or obsolete stock (declining turnover signals issues), aiding inventory control.
Benchmarks efficiency (e.g., Target vs. peers). Combined with receivables turnover, it defines and completes the operating cycle (inventory to cash). This is useful for evaluating asset quality and operational effectiveness, especially for large inventories like Dillard’s ($1.4–$1.5 billion).