This measures the number of times invested in goods to be sold or used over in a year.
An item whose inventory is sold (turns over) once a year has higher holding cost than one that turns over twice, or three times, or more in that time. The purpose of increasing inventory turns is to reduce inventory for three reasons.
However high turns may indicate that the inventory is too low. This often can result in stock shortages.
Some computer programs measure the stock turns of an item using the actual number sold.
In practice this tends to be confusing and can give misleading results if averaged out over a department.
Also sometimes we measure stock turn rates based on annual sales at retail divided by average inventory at retail. This measurement, is sometimes available in computer systems, is based on the value that your customer perceives product (actual selling price which may include markdowns) and the value of your inventory. These computer systems can devalue inventory as markdowns occur even before they are sold. One valid reason for using retail for these calculations is that if a $100 retail-priced item (that was $50 at cost) is now only worth $80, then the retailer would find it difficult to pay $50 for an item only worth $80 to customers.
Retail-calculated stock turns rates tend to be lower than those calculated at cost.
The important issue is that any organization should be consistent in the formula that it uses.