Rate of inventory turnover

What the exam boards say

• Cambridge 0452 and 0985, 2027 to 2029: listed. Formula as printed: Cost of sales / Average inventory (answer in times).
• Cambridge, 2026 syllabus: listed. Formula as printed: Cost of goods sold / Average inventory (answer in times).
• Pearson Edexcel 4AC1: not named in the specification.
• OxfordAQA 9215: named as "rate of inventory turnover"; the formula is in OxfordAQA's separate guide, Formulae for accounting ratios.

Cambridge states that for 2027 to 2029 the printed formulas are the only ones accepted in candidate responses, so use the wording above for a Cambridge paper.

Sources: Cambridge IGCSE Accounting 0452: syllabus for 2027-2029 (Version 1), pages 18, 21; Cambridge IGCSE Accounting 0452: syllabus for examination in 2026 (Version 2, December 2025), page 19; Pearson Edexcel International GCSE in Accounting (4AC1) specification (FT Sept 2017) (Issue 1, October 2016), page 21; OxfordAQA International GCSE Accounting (9215) specification (FT Sept 2024) (Version 1.2), page 18. See all sources.

Worked example

Cost of sales RM30,000 ÷ average inventory RM5,000 = 6 times.

How to interpret it

A higher turnover usually means inventory sells quickly. Compare with similar businesses; too low may mean overstocking or slow lines.

Using it in analysis

The rate of inventory turnover shows how briskly a business sells and replaces its stock. Compare it year by year and with a similar business. A turnover of eight times a year means about one cycle every 45 days.

A rising rate usually means stock is selling faster, which frees cash and lowers the risk of goods going out of date. A falling rate suggests weaker demand, over-ordering or slow lines clogging the storeroom.

Example: cost of sales is RM480,000, opening inventory RM55,000 and closing inventory RM65,000. Average inventory is (55,000 + 65,000) ÷ 2 = RM60,000, so turnover is 480,000 ÷ 60,000 = 8 times. The next year cost of sales is RM500,000 but average inventory has grown to RM100,000, perhaps because the owner over-ordered. Turnover falls to 5 times, or about every 73 days. Stock now sits longer, tying up cash and raising the risk of discounts or write-offs.

Common mistakes: assuming faster is always better. A very high rate can mean the business holds so little that it runs out and loses sales. Comparing trades is also unfair, since a greengrocer turns stock over far faster than a jeweller. The ratio says nothing about profit on each sale, and using an average of two figures can hide seasonal swings.

Read it with gross margin. A business selling at low prices may accept a small margin and rely on high volume. Another may sell fewer items at a higher margin. If turnover slows while the margin also falls, that is more worrying than slower turnover with a rising margin. A pure service business holds little stock, so the ratio barely applies.

Limitations

The right level depends heavily on the type of business (fresh food vs furniture).