A financial health indicator that measures the number times inventory has been sold and replenished during fiscal year. This ratio is calculated by dividing purchase made by a company by the average inventory balance (i.e. average of inventory balance at the beginning of the period and at the end of the period). Ideally the resulting ratio should be converted to a “days inventory on hand” and be just a little higher than the supplier lead time required to replenish inventory, or the shelf life of the inventory (as in the case of food). Classified as an activity ratio.