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Inventory Turnover Calculator

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Find how many times you sell through your inventory in a year, and how many days inventory typically sits before selling.

Inventory Turnover Calculator

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Inventory turnover
6.25x per year
Days inventory on hand
58.4 days
Average inventory = (beginning inventory + ending inventory) / 2, for the period you're measuring.

The formula

Inventory turnover = Cost of goods sold / Average inventory value Days inventory on hand = 365 / Turnover
Example

$500,000 annual COGS with $80,000 average inventory: turnover = 500,000/80,000 = 6.25 times per year, meaning inventory sits an average of 58.4 days before selling.

Step-by-step guide

  1. Find your annual cost of goods sold from your income statement.
  2. Calculate average inventory - typically (beginning inventory + ending inventory) / 2 for the period.
  3. Read your turnover ratio and days inventory stays on hand before selling.

Why turnover isn't simply "higher is always better"

A higher turnover generally signals efficient inventory management and strong sales relative to stock levels, while a low turnover can mean overstocking, slow-moving goods, or weak demand. But turnover that's too high can also signal a different problem - understocking, missed sales from stockouts, or a razor-thin buffer that leaves no room for demand spikes or supply delays. The "right" turnover ratio varies significantly by industry - grocery and fast fashion turn inventory much faster than furniture or heavy equipment.

Common mistakes

Using revenue instead of cost of goods sold in the numerator - turnover measures how fast inventory (valued at cost) moves, not how much revenue it generated.
Using year-end inventory alone instead of an average - a single snapshot can be misleading if inventory levels fluctuate seasonally throughout the year.

Frequently asked questions

What's a good inventory turnover ratio?

It varies enormously by industry - grocery stores often turn inventory 10-15+ times a year, while jewelry or furniture retailers may turn just 2-4 times. Compare against your specific industry's typical benchmark rather than a universal target.

What does "days inventory on hand" actually tell me?

It's the same information as turnover, expressed differently - the average number of days a unit of inventory sits before it sells, which is often more intuitive for cash flow and storage planning purposes.

How can I improve a low inventory turnover?

Common approaches include running promotions on slow-moving stock, improving demand forecasting to avoid overordering, and negotiating smaller, more frequent supplier orders instead of large infrequent ones.

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