About the Inventory Turnover Calculator
Inventory turnover counts how often a business clears and rebuilds its stock in a period. The ratio is cost of goods sold / average inventory, and average inventory is the opening balance plus the closing balance divided by two. Using cost of goods sold rather than revenue keeps both sides of the fraction at cost, so a change in selling prices does not distort the answer.
The companion figure is days of inventory on hand, found by dividing the days in the period by the turnover. Six turns a year is about 61 days of stock. Retail managers usually find the day count easier to act on, because it maps directly onto reorder cycles and shelf space. The period field defaults to 365 but accepts 90 for a quarter or 30 for a month, as long as the cost of goods sold covers that same window.
What counts as good depends entirely on the goods. Supermarkets selling fresh produce may turn stock more than twenty times a year, a fashion retailer four to six, and a jeweller once or twice. A falling ratio hints at overbuying, weak demand or obsolete lines gathering dust. A very high ratio looks efficient until stockouts start costing sales. Compare the trend against yourself and against direct competitors, never against a cross industry average. For the profitability side of the same trading period, see the Net Profit Margin Calculator.
How to use
- Enter the cost of goods sold for the period you are measuring.
- Add the opening and closing inventory balances so an average can be taken.
- Set the days in the period, 365 for a year or 90 for a quarter.
- Use the days on hand figure when you set reorder points and safety stock.
Common questions
- Why use cost of goods sold instead of sales?
- Inventory is carried at cost, so dividing sales by it mixes two different bases and inflates the ratio by the gross margin.
- Can I use a single inventory figure?
- You can put the same number in both fields, but an average smooths seasonal spikes and gives a fairer picture over a full year.
- Is a high turnover always good?
- Not always. Very high turnover can mean stock is too thin, leading to missed sales and rush ordering at worse prices.
- How does this relate to the cash cycle?
- Days of inventory is one leg of the cash conversion cycle, alongside receivable days and payable days.