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Inventory turnover calculator
Enter cost of goods sold for the period and the beginning and ending inventory balances. You get inventory turnover, days in inventory and the average balance, with the formulas behind each.
Balance sheet and income statement
For the period, from the income statement.
365 for a year, 90 or 91 for a quarter.
The inventory turnover formula
A business with $600,000 of cost of goods sold, $90,000 of inventory at the start of the year and $110,000 at the end holds $100,000 on average. It turns its inventory 6.0 times a year, or once in 61 days on average.
Reading the result
- Falling turnover with flat sales means inventory is building up: check for slow-moving or obsolete items.
- Rising turnover frees cash, but watch fill rates and stockouts.
- Days in inventory plus days sales outstanding, less days payables outstanding, gives the cash conversion cycle.
Inventory turnover: questions
- Why use cost of goods sold and not sales?
- Inventory is carried at cost, so dividing cost of goods sold by inventory compares like with like. Dividing sales by inventory mixes in the markup and makes turnover look higher than it is.
- Why use average inventory?
- Cost of goods sold builds up over the whole period, while an inventory balance is a single date. Averaging the beginning and ending balances smooths out a year-end that happens to be unusually high or low. For a seasonal business, average the monthly balances instead.
- What is a good inventory turnover?
- It varies widely by industry: a grocer turns perishable stock far faster than a heavy-equipment dealer. Higher turnover usually means less cash tied up and less risk of obsolete stock; turnover that's too high can mean stockouts. Track your own trend and compare with similar businesses.
- How do I convert turnover to days?
- Divide the days in the period by turnover. 6 turns in a 365-day year is 60.8 days in inventory, the average time between buying or making stock and selling it.
More ratios
The financial ratios cheat sheet has the cash conversion cycle and the other activity ratios.