Inventory Turnover Calculator
Calculate how efficiently your business sells and replaces inventory using your cost of goods sold and average inventory.
Calculate Inventory Turnover
Your Inventory Turnover Result
Enter your COGS and inventory values to calculate your inventory turnover ratio and days inventory outstanding.
How to Calculate Inventory Turnover
Inventory turnover measures how many times a business sells and replaces its average inventory during a reporting period. It helps businesses understand inventory movement and stock management.
Step 1: Calculate Average Inventory
Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2
Step 2: Calculate Inventory Turnover
Inventory Turnover = Cost of Goods Sold ÷ Average Inventory
Step 3: Calculate Days Inventory Outstanding
Days Inventory Outstanding = Reporting Period Days ÷ Inventory Turnover
Example Calculation
Suppose a business has the following figures for a 365-day period:
- Cost of goods sold: $240,000
- Beginning inventory: $30,000
- Ending inventory: $50,000
- Reporting period: 365 days
The average inventory is:
($30,000 + $50,000) ÷ 2 = $40,000
The inventory turnover ratio is:
$240,000 ÷ $40,000 = 6 times
Days inventory outstanding is:
365 ÷ 6 = 60.83 days
How to Interpret Inventory Turnover
A higher inventory turnover ratio generally means inventory is selling and being replenished more frequently. However, an unusually high ratio may also indicate insufficient stock and potential stockouts.
A lower ratio may indicate slow-moving inventory, excess stock or weaker sales. The appropriate ratio depends on the industry, business model and product type. There is no universal ideal ratio.
Important Notes
- Enter beginning and ending inventory values at cost, not retail selling prices.
- COGS and both inventory values must relate to the same reporting period and accounting basis.
- This calculator uses the average of beginning and ending inventory. It does not account for daily or seasonal inventory fluctuations.
- If COGS is zero, days inventory outstanding is not available.
Frequently Asked Questions
What is inventory turnover?
Inventory turnover is a financial ratio that measures how many times a business sells and replaces its average inventory during a specific period.
What is a good inventory turnover ratio?
It depends on the industry and type of business. Grocery businesses may have different turnover patterns from furniture or machinery businesses. Compare the ratio with similar businesses and historical performance.
Why is average inventory used?
Average inventory accounts for the inventory value at both the beginning and end of the reporting period, providing a simple estimate of the inventory held during that period.
What are days inventory outstanding?
Days inventory outstanding estimates how many days, on average, inventory remains in the business before being sold, based on the turnover ratio and reporting period.
Should I use inventory cost or selling price?
Use inventory values at cost, not retail selling prices. COGS and inventory should be measured on a consistent cost basis.