Inventory Turnover measures how many times per year a business converts its Inventory into Sales. That is, how quickly the business is able to sell its inventory.

Along with Receivables Turnover, it measures the liquidity of a business, which is the ability of a business to pay its current liabilities.

Inventory turnover = Cost of Goods Sold (COGS) / Average Inventory

The higher the inventory turnover number, the more liquid the business, which means the business is in good financial health.