How to use the inventory turnover calculator
- 1Enter your cost of goods sold (COGS) for the period, from your income statement or accounting software.
- 2Choose whether you have beginning and ending inventory values or a single average figure.
- 3Enter the inventory values at cost, not at selling price.
- 4Set the length of the period in days: 365 for a year, 90 for a quarter, 30 for a month.
- 5Read your turnover ratio and days inventory outstanding. Change any number to test what faster sell-through would look like.
What inventory turnover tells you
Inventory turnover is how many times you sell and replace your average stock during a period. A turnover of 6 over a year means your stock, on average, sold through six times.
It uses cost of goods sold rather than revenue because inventory is recorded at cost. Using sales instead would inflate the ratio by your markup and make it hard to compare with other businesses.
Average inventory = (Beginning inventory + Ending inventory) ÷ 2 Inventory turnover = COGS ÷ Average inventory
Days inventory outstanding (DIO)
Days inventory outstanding, also called days sales of inventory (DSI), turns the ratio into a number of days: how long the average item waits before it sells. Lower means cash comes back faster.
If you measure a quarter, use 90 or 91 days so the result stays in real days. The calculator also shows the annual pace, so a quarter can be compared with a full year.
DIO = Days in period ÷ Inventory turnover or DIO = Average inventory ÷ COGS × Days in period
What counts as a good turnover depends on what you sell
There is no single good number. Grocery and fresh food businesses often turn stock well over 10 times a year because products spoil. Fashion and general retail often sit somewhere around 3 to 8. Furniture, jewellery and industrial parts can be well under 4 and still be healthy.
The most useful comparison is with your own past periods and with businesses that sell similar products. A falling ratio can point to overbuying or slow lines; a very high ratio can mean frequent stockouts and lost sales.
One average across a whole shop can hide problems. If you can, run the numbers per category or per supplier to find the lines that tie up cash.
Worked example
A home goods shop had $480,000 in cost of goods sold last year. It started the year with $70,000 of stock at cost and ended with $90,000.
| Cost of goods sold | $480,000 |
| Beginning inventory | $70,000 |
| Ending inventory | $90,000 |
| Average inventory | $80,000 |
| Inventory turnover | 6.0 times |
| Days inventory outstanding | 60.8 days |
The shop sold through its stock six times in the year, so an average item sat for about 61 days before it sold. Cutting average stock to $60,000 at the same COGS would raise turnover to 8 and drop DIO to about 46 days.