Free tool · Inventory
Inventory turnover calculator
How many times a year does your stock sell through, and how many days does it sit on the shelf? Enter cost of goods sold and your opening and closing inventory. Runs in your browser; nothing is saved.
From your books
From your profit and loss. Use cost, not the selling price.
At cost, from the balance sheet on the first day.
Turnover
Average inventory
(Start + end) ÷ 2
$40,000.00
Inventory turnover
Cost of goods sold ÷ average inventory
6.00 times
Days inventory outstanding
Days in the period ÷ turnover: how long stock sits before it sells
60.8 days
Weeks of stock on hand
8.7 weeks
What counts as good depends on what you sell: a grocer may turn stock 15 times a year, a furniture or hardware store 3 or 4. Compare with your own past periods first. Use the same cost method (FIFO or average) for both inventory figures.
How inventory turnover is calculated
- Average inventory = (inventory at the start + inventory at the end) ÷ 2, both at cost.
- Inventory turnover = cost of goods sold for the period ÷ average inventory.
- Days inventory outstanding = days in the period ÷ inventory turnover.
- Yearly pace for a shorter period = turnover × 365 ÷ days in the period.
Worked example
A hardware store had $35,000 of inventory at cost on January 1 and $45,000 on December 31. Its cost of goods sold for the year was $240,000. Average inventory is $40,000, so turnover is $240,000 ÷ $40,000 = 6 times. Stock sits for 365 ÷ 6 = 60.8 days on average, or about 8.7 weeks. If the store got that down to 45 days, it would carry about $29,600 of stock for the same sales and free roughly $10,400 of cash.
Where the numbers come from
- Cost of goods sold is on your profit and loss for the period. In a periodic system it is opening inventory + purchases − closing inventory.
- Opening and closing inventory are on the balance sheet at the first and last day. Count stock at least once a year and adjust the books to the count first.
- Use one cost method for both figures. FIFO and average cost give different values when prices change; see FIFO vs average cost.
- Seasonal businesses get a truer average from 12 month-end balances than from two year-end ones.
How to improve turnover
- Find the slow items. Turnover for the whole store hides lines that have not sold in a year. Run it by product group.
- Order closer to need, with reorder points set from real sales rather than habit.
- Clear dead stock at a discount: cash now is worth more than stock that may never sell. Check the price against your margin with the markup and margin calculator.
- Watch working capital, because stock is cash on a shelf. The working capital calculator shows the whole picture.
Questions
What is the inventory turnover formula?
Inventory turnover = cost of goods sold ÷ average inventory, where average inventory = (inventory at the start + inventory at the end) ÷ 2. With $240,000 of cost of goods sold and inventory of $35,000 at the start of the year and $45,000 at the end, average inventory is $40,000 and turnover is 6 times a year.
How do I work out days inventory outstanding?
Divide the days in the period by the turnover. 365 ÷ 6 = 60.8 days: on average, stock sits for about two months before it sells. It is also called days sales of inventory (DSI) or days in inventory.
Why use cost of goods sold and not sales?
Inventory is carried at cost on the balance sheet, so dividing it into sales (which include your markup) overstates the turnover. Some sources use sales, which is why published figures do not always agree; whichever you use, use it the same way every time.
What is a good inventory turnover ratio?
It depends on what you sell. Perishable and fast-moving goods (groceries, restaurant supplies) turn many times a year; furniture, jewellery, machinery and spare parts turn far more slowly. The most useful comparison is with your own past periods and with businesses that sell the same kind of goods.
Is a high inventory turnover always good?
Mostly, because less cash is tied up in stock and less goes stale. But very high turnover can mean you are running out and losing sales, or buying in small lots at higher prices. Look at stock-outs and gross margin alongside it.
How often should I calculate it?
Monthly or quarterly is enough for most small businesses. For a month or a quarter, choose the shorter period in the calculator and it also shows the yearly pace. Use inventory figures after your stock count or adjustments, so the numbers match what is on the shelves.
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General information, not financial advice.
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