What this calculator does
Turnover ratios measure how hard a company's assets are working. Each one divides a flow, meaning revenue or cost of goods sold, by a balance, and the answer is how many times that balance cycles through the business in a year.
Converting them to days makes them tangible. An inventory turnover of 7.33 times sounds abstract, but 49.8 days of stock on hand is something a manager can picture and act on.
The formula
Inventory turnover divides cost of goods sold by average inventory, while the other three divide revenue by the relevant asset balance. Dividing 365 by a turnover figure converts it into days.
| Term | Meaning |
|---|---|
| Inventory turnover | How many times stock is sold and replaced in a year. |
| Receivables turnover | How many times the receivables balance is collected in a year. |
| Asset turnover | Revenue generated per dollar of assets, the efficiency term in DuPont analysis. |
The inputs explained
| Field | What to enter |
|---|---|
| Revenue ($) | Revenue for the year. |
| Cost of goods sold ($) | Cost of goods sold, used for inventory turnover. |
| Average inventory ($) | Average inventory over the year, ideally opening plus closing divided by two. |
| Average accounts receivable ($) | Average accounts receivable. |
| Average total assets ($) | Average total assets. |
| Average net fixed assets ($) | Average net fixed assets, meaning property, plant and equipment after depreciation. |
When to use it
Diagnosing slow stock
A falling inventory turnover means capital is being tied up in goods that are not selling.
Reviewing credit control
Receivables turnover converted to days shows how long customers actually take to pay.
Assessing asset efficiency
Total asset turnover is one of the three drivers of return on equity.
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 does stock level affect inventory turnover?
The same trading with three levels of average inventory.
| Average inventory | Inventory turnover | Days inventory outstanding |
|---|---|---|
| $100k | 11.00× | 33.2 days |
| $150k | 7.33× | 49.8 days |
| $250k | 4.40× | 83.0 days |
Questions
Why does inventory turnover use cost of goods sold?
Because inventory is carried at cost, not at selling price. Using revenue would inflate the ratio by the profit margin and make comparisons across businesses with different margins meaningless.
Is higher turnover always better?
Usually, but not without limit. Very high inventory turnover can mean stock is running out and sales are being lost. The right level depends on lead times and how costly a stockout is.
Why use average rather than closing balances?
Because a single date can be unrepresentative, particularly for seasonal businesses. Averaging opening and closing balances gives a figure more consistent with a full year's flow.
What does fixed asset turnover add?
It isolates how productively the property and equipment are being used, separate from working capital. It is most informative for manufacturers and others with heavy fixed asset bases.
For how these days figures combine into a cash cycle, see the cash conversion cycle calculator. For where asset turnover fits into returns, see the DuPont analysis calculator.