Inventory Turnover Ratio Calculator

What is inventory turnover?

Inventory turnover is the number of times a business sells and replaces its stock in a period, normally a year. A higher figure means goods spend less time on the shelf and less cash is tied up in them; a low figure points to overstocking or slow sales.

Formulas

• Average inventory = (beginning inventory + ending inventory) ÷ 2
• Inventory turnover = cost of goods sold ÷ average inventory
• Days to sell = 365 ÷ inventory turnover

Worked example

Inventory went from 70,000.00 to 90,000.00, an average of 80,000.00. With cost of goods sold of 480,000.00 the stock turned over 6×, or once every 60.8 days.

How to use the inventory turnover ratio calculator

1. Enter your figures: cost of goods sold, beginning inventory and ending inventory.
2. Read the result. It updates as you type, so there is no button to press.
3. Try other numbers to compare scenarios. Reset brings back the example values.

Getting it right

• Compare with businesses in your own trade. A supermarket may turn stock 15 times a year, a furniture shop three or four.
• Use cost of goods sold, not sales revenue. Revenue includes your markup and overstates the ratio.
• A very high ratio is not always good news; it can mean you are running out of stock and losing sales.

Frequently asked questions

How is inventory turnover calculated?

Divide cost of goods sold for the period by the average inventory held during it. Average inventory is the opening plus closing value, divided by two.

What is a good inventory turnover ratio?

For many retailers between 4 and 8 is healthy, but it varies widely by industry. Perishable goods need far higher turnover than luxury or made-to-order goods.

How can I improve inventory turnover?

Order smaller quantities more often, clear slow-moving lines with promotions, and forecast demand so you stop buying what does not sell.