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Inventory turnover. How hard your stock works.

Inventory turnover is how many times you sell through your average stock in a period: cost of goods sold divided by average inventory. Enter your cost of goods sold and opening and closing stock and this calculator gives turnover, days inventory outstanding and the cash a target turnover would release.

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Inventory turnover0

Days inventory outstanding0

Cash released at target–

How to read itTurnover varies widely by industry and business model. Fast-moving consumables usually turn more often than durable, seasonal or engineered goods, and importers holding safety stock for long sea lead times often turn less often than local distributors. Your own trend over time and peers in your category are the best benchmark.

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How it works

Three steps. One clear answer.

01
Choose the period and enter cost of goods sold for that period.
02
Enter opening and closing inventory at cost, and a target turnover if you have one.
03
Read turnover, days inventory outstanding and the cash released at your target.

Method and sources

Inventory turnover = cost of goods sold ÷ average inventory, where average inventory = (opening + closing) ÷ 2, both at cost. Days inventory outstanding (DIO) = days in the period ÷ turnover, using 365 days a year, 91.25 a quarter and 30.42 a month. Quarterly and monthly turnover is annualised by multiplying by 4 or 12. Inventory at a target turnover = annual cost of goods sold ÷ target, and cash released = current average inventory − that figure.

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Inventory turnover questions

Straight answers.

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How do you calculate inventory turnover?

Divide cost of goods sold for the period by average inventory at cost. With COGS of 1,800,000 and average stock of 400,000, turnover is 4.5 times a year.

What is days inventory outstanding?

The average number of days stock is held before it is sold: 365 divided by the annual turnover. A turnover of 4.5 means about 81 days.

What is a good inventory turnover ratio?

It varies widely by industry and business model, so compare with your own history and with peers in your category. A rising turnover with strong fill rates usually means healthier stock.

Should I use sales or cost of goods sold?

Cost of goods sold, because inventory is valued at cost. Using sales inflates the ratio by your margin.

Use it with

Tools that work well together.

PlanningEOQEconomic order quantity (EOQ) is the order size that minimises the combined yearly cost of placing orders and holding stock.PlanningSafety stockSafety stock is the extra stock held to cover swings in demand and in supplier lead time.PlanningReorder pointThe reorder point (ROP) is the stock level at which you place the next order so it arrives before you run out: average daily demand × lead time + safety stock.CostShould-costShould-cost is the price a well-run factory could reasonably charge for a part, built up from material, machine time, tooling, finishing, packaging, overhead and a fair margin.

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