Inventory Turnover Ratio Calculator
Inventory Turnover Ratio Calculator
Inventory turnover measures how efficiently a company manages its stock. A higher turnover generally means products are selling quickly and less cash is tied up sitting on shelves; a lower turnover can signal overstocking, weak demand, or obsolete inventory.
Retailers, wholesalers, and manufacturers track this ratio closely since inventory often represents one of the largest uses of working capital.
- Formula: Inventory Turnover = Cost of Goods Sold ÷ Average Inventory; Days to Sell = 365 ÷ Turnover.
- Average inventory is typically (beginning inventory + ending inventory) ÷ 2, which smooths out seasonal swings compared to using a single point-in-time balance.
- Benchmarks vary hugely by industry: grocery stores may turn inventory over 15-20+ times a year, while heavy machinery manufacturers might turn it over just 3-5 times — always compare within the same sector.
What counts as "cost of goods sold" (COGS)?
COGS is the direct cost of producing or acquiring the goods sold during the period (materials, direct labor, manufacturing overhead) — found on the income statement, above gross profit.
Is a very high inventory turnover always good?
Not necessarily — extremely high turnover can mean a company is understocked and losing sales to stockouts. The right level depends on balancing carrying costs against the risk of running out of stock.
Inventory Turnover Ratio Calculator
Inventory turnover measures how efficiently a company manages its stock. A higher turnover generally means products are selling quickly and less cash is tied up sitting on shelves; a lower turnover can signal overstocking, weak demand, or obsolete inventory.
Retailers, wholesalers, and manufacturers track this ratio closely since inventory often represents one of the largest uses of working capital.
- Formula: Inventory Turnover = Cost of Goods Sold ÷ Average Inventory; Days to Sell = 365 ÷ Turnover.
- Average inventory is typically (beginning inventory + ending inventory) ÷ 2, which smooths out seasonal swings compared to using a single point-in-time balance.
- Benchmarks vary hugely by industry: grocery stores may turn inventory over 15-20+ times a year, while heavy machinery manufacturers might turn it over just 3-5 times — always compare within the same sector.
What counts as "cost of goods sold" (COGS)?
COGS is the direct cost of producing or acquiring the goods sold during the period (materials, direct labor, manufacturing overhead) — found on the income statement, above gross profit.
Is a very high inventory turnover always good?
Not necessarily — extremely high turnover can mean a company is understocked and losing sales to stockouts. The right level depends on balancing carrying costs against the risk of running out of stock.