Inventory Turnover Ratio is a measure of how effectively a company is using its inventory. It is popularly used by retail outlets to identify inventory-specific challenges such as excess or inadequate inventory. It is calculated by dividing the Cost of Goods Sold (COGS) by the Average Value of the Inventory at a given period of time. A higher Inventory Turnover Ratio denotes higher sales or an insufficient inventory threshold. In contrast, a lower Inventory Turnover Ratio denotes less sales or excess inventory levels.