Inventory turnover ratio calculator
Turnover is the standard measure of how efficiently your inventory turns into cash. This shows how many times a year your stock turns over, and how many days one full cycle takes — a low number is a signal to look at what's not selling.
What your result means
The turnover figure is how many times you sell through your average inventory in a year. Days inventory outstanding (DIO) is the same result in days: how long stock sits, on average, before it sells.
A higher turnover and a lower DIO mean cash comes back to you faster. If turnover is falling compared with last year, or DIO is longer than your supplier lead time by a wide margin, some of your stock isn't selling as fast as you buy it. That's usually a few slow SKUs rather than everything.
How the inventory turnover ratio formula works
Inventory turnover ratio = COGS ÷ Average inventory Average inventory = (Beginning inventory + Ending inventory) ÷ 2
- COGS
- cost of goods sold for the year
- Beginning / Ending inventory
- inventory value at cost at the start and end of the year
This calculator takes average inventory as a single number. If you only have beginning and ending balances, average them first. If you have monthly balances, average all twelve for a more accurate result.
It then converts turnover into days:
DIO = 365 ÷ Inventory turnover
For the full background on DIO, including quarterly and monthly versions, see the guide to days inventory outstanding.
Worked example
Worked exampleExample numbers
These match the calculator's default inputs.
| Input | Value |
|---|---|
| Annual COGS | $400,000 |
| Average inventory at cost | $100,000 |
- Turnover = $400,000 ÷ $100,000 = 4.0 times a year
- DIO = 365 ÷ 4 = 91.25 days
This store sells through its average stock four times a year, so a typical unit waits about three months before it sells.
If the same store kept sales flat but cut average inventory to $80,000, turnover would rise to $400,000 ÷ $80,000 = 5.0 and DIO would drop to 365 ÷ 5 = 73 days, freeing $20,000 of cash.
How to improve inventory turnover
- Find the slow movers first. Turnover is an average. Sort products by days since last sale; a handful of slow SKUs usually drags the whole number down. The dead stock calculator shows what they're costing you each month.
- Reorder on data, not habit. A reorder point based on daily sales and lead time stops you buying before you need to.
- Right-size safety stock. Extra buffer on every product lowers turnover. Hold more on best-sellers with unreliable suppliers, less on steady, slow items.
- Buy in smaller batches where supplier minimums allow it, so less stock sits waiting.
- Don't fix turnover by running out. Turnover also rises when best-sellers stock out, but that costs you sales. Raise turnover by trimming excess, not by starving demand.
FAQ
What is a good inventory turnover ratio?
It depends on what you sell. Perishable, seasonal and fast-fashion products need to turn quickly, while durable goods with long supplier lead times naturally turn more slowly. Track your own ratio over time and by category: a falling ratio is the signal to act on.
Should I use average inventory or ending inventory?
Average inventory, where you can. A single year-end figure can be unusually high or low, especially around peak season. Averaging the beginning and ending balances, or better still the monthly balances, gives a fairer picture.
Can I use revenue instead of COGS?
Use COGS. Inventory is valued at cost, so dividing revenue by it mixes retail prices with cost prices and overstates turnover. Some sources show a sales-based version, but it isn't comparable with the COGS-based ratio.
How is inventory turnover related to days inventory outstanding?
They're two views of the same thing. Days inventory outstanding is 365 divided by annual turnover, so a store turning stock 4 times a year holds about 91 days of inventory. This calculator shows both.