Inventory turnover shows how many times you sell and replace your inventory in a period. To calculate it, divide cost of goods sold (COGS) by your average inventory. Use the free inventory turnover calculator below to get your turnover ratio, average inventory and how many days your stock sits before it sells.
Inventory Turnover Calculator
Inventory Turnover Formula
Inventory turnover ratio = Cost of goods sold ÷ Average inventory
Average inventory = (Beginning inventory + Ending inventory) ÷ 2
Days in inventory = Days in period ÷ Inventory turnover ratio
The days figure is also called days inventory outstanding (DIO).
How to Calculate Inventory Turnover: Example
A distributor had $600,000 of COGS last year. It started the year with $140,000 of inventory and ended with $100,000.
| Step | Calculation | Result |
|---|---|---|
| Average inventory | ($140,000 + $100,000) ÷ 2 | $120,000 |
| Inventory turnover | $600,000 ÷ $120,000 | 5.0 times |
| Days in inventory | 365 ÷ 5.0 | 73 days |
The distributor sells through its entire stock about five times a year, and an average item sits on the shelf for about 73 days.
What Your Inventory Turnover Tells You
| Result | What it can mean | What to check |
|---|---|---|
| Low turnover | Slow-moving or excess stock, cash tied up in inventory, higher storage costs and risk of obsolete goods | Overstocked SKUs, buying in quantities larger than demand, pricing |
| High turnover | Strong sales and lean stock, so less cash is tied up | Stockouts and lost sales if inventory is too thin |
| Falling over time | Demand slowing or purchasing running ahead of sales | Sales trends and open purchase orders |
Track turnover by product or category, not only for the business as a whole. A few slow SKUs can hide behind a healthy average. Our free inventory spreadsheet template helps you track stock levels by item.
How to Improve Inventory Turnover
- Buy closer to demand. Use sales history to forecast and order in smaller, more frequent batches where lead times allow.
- Clear slow-moving stock with bundles, promotions or markdowns before it becomes obsolete.
- Review your product mix and drop SKUs that rarely sell.
- Shorten lead times with reliable suppliers so you can carry less safety stock.
- Watch the cash side. Turnover is one part of your cash conversion cycle. The longer stock sits, the longer your cash is locked up. Inventory financing can fund stock while you wait for it to sell.
Inventory Turnover vs Days Inventory Outstanding
Both measure the same thing from different angles. Inventory turnover counts how many times stock is sold in a period. Days inventory outstanding (DIO) converts that into the average number of days an item is held. A turnover of 5 a year equals about 73 days; a turnover of 12 equals about 30 days.
Frequently Asked Questions
How do you calculate inventory turnover?
Divide cost of goods sold (COGS) for the period by your average inventory, where average inventory is (beginning inventory + ending inventory) ÷ 2. With $600,000 of COGS and average inventory of $120,000, inventory turnover is 5.
What is the inventory turnover formula?
Inventory turnover ratio = Cost of goods sold ÷ Average inventory.
How do you calculate days in inventory?
Divide the number of days in the period by the inventory turnover ratio. A turnover of 5 over a 365-day year means you hold inventory for about 73 days on average.
What is a good inventory turnover ratio?
There is no single good number: perishable and fast-moving goods turn far more often than furniture, machinery or luxury goods. Compare your ratio with your own past results and with businesses that sell similar products.
Should I use sales or COGS to calculate inventory turnover?
COGS is more accurate, because inventory is valued at cost and sales include your markup. Some people use sales, which makes turnover look higher.
Is high inventory turnover always good?
Usually, because cash isn't tied up in stock for long. But very high turnover can mean you are running too lean and losing sales to stockouts.
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