Stock turns six times a year. A third of the cash turns once.

Aggregate inventory turnover is an average of two very different businesses, and the half that looks healthy is usually the half you can measure.

By Steve 5 min read
Abstract bridge artwork for Stock turns six times a year. A third of the cash turns once.

A distributor sets a target of six inventory turns, hits it, and finds the overdraft where it was. The finance director checks the arithmetic, cost of goods sold divided by average inventory, and it is correct. Turns improved. Cash didn’t. The explanation is almost always the same: turnover is a ratio of two aggregates, and aggregates hide the fact that a stockholding business is really two businesses sharing a warehouse. The average belongs to the fast lines Take an illustrative shape rather than a real company. A business carries 1,000…

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