Inventory Turnover ITR
How many times a year you sell and replace your average stock.
The fork, why two teams get different numbers
The classic mismatch: turns can be computed at COST or at RETAIL, and the two are
not comparable. Finance uses COGS ÷ average inventory at cost (both at cost, the
accounting-consistent version). Merchants often use NET SALES ÷ average inventory
at retail, or worse, mix bases, sales (retail) ÷ inventory (cost), which inflates
turns by the full markup factor. Average inventory is itself a fork: a two-point
(beginning + ending)/2 average versus a 13-point month-end average give very
different results in a seasonal business.
The trap
The mixed-basis version, sales at retail over inventory at cost, is the common landmine: it silently multiplies true turns by (1 ÷ cost complement), so a store with real 3.0 turns reports 6-7 and looks best-in-class.
- The full trap, worked on a real export
- Every formula variant, spelled out
- The reconciliation anchor, what to tie it to and when to refuse
Reference: Retail inventory-accounting convention · GAAP inventory (ASC 330) for cost basis (reference)