How quickly is my inventory selling?
Inventory turnover measures how many times stock is sold and replaced during a period. Divide cost of goods sold by average inventory valued at cost. Divide the period’s days by turnover to estimate days of inventory on hand.
The formula, explained.
Average inventory = (beginning + ending inventory) ÷ 2 Turnover = period COGS ÷ average inventory Days inventory = period days ÷ turnover
A worked example
- Take a full year with $120,000 in cost of goods sold. Inventory valued at cost is $18,000 at the beginning and $22,000 at the end. Average those two balances: ($18,000 + $22,000) ÷ 2 = $20,000. Keep both numerator and denominator on a cost basis; using sales revenue would inflate the ratio.
- Divide the $120,000 annual cost of goods sold by $20,000 average inventory. Turnover is 6.00 times for the year. For a 365-day period, estimated days of inventory are 365 ÷ 6 = 60.83 days. If you instead analyze one quarter, use that quarter’s cost of goods sold, inventory averages and actual number of days together.
- Interpret the result alongside availability and seasonality. Six turns with frequent stockouts can mean you are understocked. Six turns with reliable availability may suit the category. If purchases are concentrated around holiday peaks, beginning and ending balances may hide large swings during the year. Enter a more representative average from regular inventory snapshots when the two-point average is misleading.
How to interpret your result
Compare similar periods and product categories. High turnover may indicate efficient inventory use or too little stock. Low turnover may reflect seasonality, slow sellers or deliberate safety stock.
Common mistakes to avoid
Use cost of goods sold and inventory valued at cost. Dividing sales revenue by inventory cost mixes two valuation bases.
Frequently asked questions
How quickly is my inventory selling?
Annual COGS of $120,000 and average inventory of $20,000 give 6 turns per year and 365 ÷ 6 = 60.8 days of inventory. Compare similar periods and product categories. High turnover may indicate efficient inventory use or too little stock. Low turnover may reflect seasonality, slow sellers or deliberate safety stock.
What is a good inventory turnover ratio?
There is no single good number. Reported ranges vary widely by industry, for example roughly 5 to 10 turns per year is commonly cited for general retail, while other sectors run higher or lower based on product type and shelf life. Compare your ratio against your own prior periods and similar product categories rather than a generic benchmark.
What does a low inventory turnover ratio mean?
A low ratio means inventory is sitting longer relative to what is sold, which ties up cash and increases the risk of obsolescence or markdowns. It can also reflect a deliberate choice, such as carrying extra safety stock for a seasonal peak or a supplier with a long lead time.
How can I increase my inventory turnover ratio?
Increase turnover by reducing average inventory relative to COGS, for example by ordering more frequently in smaller quantities, discounting slow-moving stock, or discontinuing weak sellers. Cutting inventory too aggressively raises the risk of stockouts, so any turnover increase should be checked against fill-rate or stockout data.
What is the difference between inventory turnover and days inventory outstanding?
Inventory turnover counts how many times inventory is sold and replaced during a period. Days inventory outstanding converts that same figure into the average number of days inventory sits before it sells. The two describe the same underlying rate; days inventory outstanding is simply period days divided by turnover.
Can I compare inventory turnover across different companies or industries?
Only with caution. Turnover ratios differ by industry, business model and how inventory is valued, so a ratio that looks low in one sector can be normal in another. Comparisons are most reliable within the same industry and using a consistent inventory valuation method.
Can I change the assumptions?
Yes. All inputs can be edited, and advanced assumptions are available below the main inputs. Use values from the same period and currency. Changing display currency changes the symbol, not the underlying amount.
Are my financial numbers saved?
No. Calculations happen locally in your browser. Sharing creates a link containing the inputs, and exporting saves a CSV report to your device. You choose whether to share those artifacts.
Sources & methodology
Learn more about our calculation methodology and estimate limitations.