Inventory Turnover Calculator

Inventory turnover tells you how many times you sold through your average stock in a period: turnover = cost of goods sold ÷ average inventory. With $600,000 in COGS and $100,000 of average inventory, turnover is 6, so stock sits about 61 days.

How to use the inventory turnover calculator

1. Enter the cost of goods sold for the period, from your income statement.
2. Enter the inventory value at the start and end of the same period, from your balance sheets.
3. Enter the number of days in the period.
4. Press Calculate to see the turnover ratio and days sales of inventory.

Inventory turnover formula

• Average inventory = (beginning inventory + ending inventory) ÷ 2
• Inventory turnover = cost of goods sold ÷ average inventory
• Days sales of inventory (DSI) = days in period ÷ turnover

Use cost of goods sold, not sales revenue: inventory is valued at cost, so COGS compares like with like. Some analysts use sales ÷ inventory, which gives a higher number; just don’t mix the two.

Worked examples

What turnover tells you

Higher turnover means stock sells quickly, so less cash is tied up and less inventory goes stale. Very high turnover can also mean you run out of stock and lose sales. Low turnover points to overstocking, slow sellers or obsolete items. Good levels depend on the industry: grocery stores turn stock far faster than furniture or jewelry stores, so compare with businesses like yours and with your own past periods.

Turnover and days on hand

Common mistakes

• Using sales instead of COGS in one period and COGS in another.
• Using only ending inventory when stock changes a lot through the year. An average gives a fairer picture.
• Comparing different period lengths. A quarterly turnover is about a quarter of the yearly figure.

Inventory turnover practice quiz: 10 questions

Test yourself with 10 multiple-choice questions. Choose an answer and press Submit to see if you are right and why. Your score appears at the end.

Frequently asked questions

How do you calculate inventory turnover?

Divide cost of goods sold by average inventory, where average inventory is (beginning + ending) ÷ 2. $600,000 ÷ $100,000 = 6 turns.

What is a good inventory turnover ratio?

It depends on the industry. Food and fast-moving consumer goods turn many times a year, while furniture, cars and jewelry turn far fewer. Compare with similar businesses and your own past results.

What is days sales of inventory?

The average number of days stock is held before it is sold: days in the period ÷ turnover. A turnover of 6 per year is about 61 days.

Is a high inventory turnover always good?

Usually it means efficient stock and less cash tied up, but if it is too high you may run out of products and lose sales.

Can I use sales instead of COGS?

Some people do, which gives a larger ratio because sales include profit. Pick one method and use it every time so the numbers are comparable.

Sources

• U.S. Small Business Administration: Manage your finances
• U.S. SEC: Beginners' Guide to Financial Statements

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