Question 1

What is a good inventory turnover ratio?

Accepted Answer

A good inventory turnover ratio depends on your industry, but for ecommerce businesses, 4–6 turns per year is considered average. Ratios above 6 indicate efficient inventory management, while ratios below 2 suggest overstocking or slow-moving products.

Question 2

How do I calculate average inventory value?

Accepted Answer

Average inventory value is calculated by adding your beginning inventory value and ending inventory value for a period, then dividing by two. For example, if you started the year with $50,000 and ended with $70,000, your average inventory is $60,000.

Question 3

What is Days Sales of Inventory (DSI)?

Accepted Answer

Days Sales of Inventory (DSI) measures the average number of days it takes to sell through your entire inventory. It is calculated as 365 divided by your inventory turnover ratio. A lower DSI means you sell inventory faster.

Question 4

Why is my inventory turnover ratio low and how can I improve it?

Accepted Answer

A low turnover ratio often means you are holding too much stock relative to your sales. To improve it, consider running promotions on slow-moving items, improving demand forecasting, negotiating smaller and more frequent supplier orders, or discontinuing underperforming SKUs.

Question 5

What is the difference between inventory turnover and stock turnover?

Accepted Answer

Inventory turnover and stock turnover are the same metric — both measure how many times your inventory is sold and replaced over a period. The terms are used interchangeably in accounting and supply chain management.

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