What this calculator does
Inventory turnover measures how many times a business sells and replaces its stock over a given period. A retailer or manufacturer sitting on inventory that turns over quickly is generally converting cash into product and back into cash again efficiently; stock that turns over slowly ties up money on shelves and in warehouses and raises the risk of it going stale, damaged or obsolete before it sells.
This inventory turnover calculator applies the standard formula, cost of goods sold divided by average inventory value, and also converts that ratio into an average number of days to sell through the inventory on hand, which is often the more intuitive figure for day-to-day operations.
The formula
Divide cost of goods sold for the period by the average inventory value held over that same period. Divide 365 by the resulting turnover ratio to get the average number of days it takes to sell through that inventory.
| Term | Meaning |
|---|---|
| Cost of goods sold (COGS) | The direct cost of the goods a business sold during the period, excluding overhead, marketing and other indirect costs. |
| Average inventory | Typically the average of beginning and ending inventory value for the period, smoothing out swings from a single snapshot. |
| Inventory turnover ratio | How many times inventory is sold and replaced over the period: COGS ÷ average inventory. |
| Days to sell (days inventory outstanding) | The average number of days inventory sits before it is sold: 365 ÷ turnover ratio. |
The inputs explained
| Field | What to enter |
|---|---|
| Cost of goods sold (period) ($) | Total cost of goods sold for the period being measured, usually a year, quarter or month. |
| Average inventory value ($) | Average inventory value over that same period, at cost, not at retail selling price. |
When to use it
How to calculate inventory turnover for a retailer
A retailer pulls cost of goods sold and average inventory value straight from its accounting records for the period, then applies the ratio to see how efficiently stock is moving compared with prior periods or competitors.
What is a good inventory turnover ratio for the industry
What counts as a good inventory turnover ratio varies enormously by industry: a grocery business selling perishables will run a far higher ratio than a furniture retailer or heavy equipment dealer holding slow-moving, high-value stock. Comparing the ratio against similar businesses matters more than any single universal benchmark.
Spotting overstocking or understocking
A sudden drop in turnover can signal overstocking or slowing sales, while an unusually high ratio can point to understocking and lost sales from stockouts, both worth investigating with the days-to-sell figure alongside the ratio.
Worked examples
Every figure in the tables below is produced by this page’s own calculator at build time, so the numbers and the tool always agree. Select any row to load that scenario.
How turnover and days to sell change with average inventory, at fixed COGS
The same annual cost of goods sold, held against a range of average inventory levels.
| Average inventory | Inventory turnover ratio | Days to sell average inventory |
|---|---|---|
| $50,000 | 12.00x | 30.4 days |
| $100,000 | 6.00x | 60.8 days |
| $150,000 | 4.00x | 91.3 days |
| $200,000 | 3.00x | 121.7 days |
| $300,000 | 2.00x | 182.5 days |
| $500,000 | 1.20x | 304.2 days |
How turnover changes as cost of goods sold rises, at fixed average inventory
A fixed average inventory value, against a range of annual cost of goods sold figures.
| Cost of goods sold | Inventory turnover ratio | Days to sell average inventory |
|---|---|---|
| $240,000 | 2.00x | 182.5 days |
| $480,000 | 4.00x | 91.3 days |
| $720,000 | 6.00x | 60.8 days |
| $960,000 | 8.00x | 45.6 days |
| $1,440,000 | 12.00x | 30.4 days |
Questions
How do you calculate inventory turnover?
Divide cost of goods sold for the period by average inventory value over that same period. The result is how many times inventory turned over during the period.
What is a good inventory turnover ratio?
There is no universal number: it depends heavily on the industry, product type and business model. Perishable and fast-moving goods typically run much higher ratios than durable or seasonal goods. The more useful check is comparing a business against its own history and against close competitors.
Why use average inventory instead of ending inventory?
Average inventory smooths out timing effects, such as a large stock delivery landing right before the period ends, which would otherwise distort the ratio if only the ending snapshot were used.
What does a very high turnover ratio mean?
It usually means stock is moving quickly, which is generally good, but an extremely high ratio can also indicate the business is understocked and missing sales from running out of popular items too often.
To work out cost of goods sold itself from purchases and inventory changes, see the COGS calculator.