Skip to content
Omnikalc

Inventory turnover: how many times a year do you sell your stock?

Calculate the inventory turnover ratio and days inventory outstanding from the cost of goods sold and the inventory at the start and end of the period.

Updated on
Your inputs
$

Value out of range

$

Value out of range

$

Value out of range

days

Value out of range

Results

Inventory turnover

6.00 times

Compare with businesses in your sector: a good level varies widely by industry

Days inventory outstanding

60.8 days

Average inventory
$200,000
Average inventory in months of sales
2.0 months

This calculator gives estimates for education and planning. It is not investment, tax or legal advice; for decisions about your own situation, talk to a qualified financial professional.

Why inventory turnover matters

Inventory ties up cash. Every product sitting on a shelf or in a warehouse has been paid for but not yet sold, and it costs money to store, insure and finance, with the risk of becoming obsolete. Inventory turnover measures how quickly a business sells and replaces its stock, and is one of the key ratios of working capital management.

The formulas

  • Average inventory = (opening inventory + closing inventory) ÷ 2
  • Inventory turnover = cost of goods sold ÷ average inventory
  • Days inventory outstanding (DIO) = days in the period ÷ inventory turnover

Using cost of goods sold rather than sales compares like with like, since inventory is recorded at cost. For a business with seasonal swings, averaging monthly inventory gives a more accurate picture than the two year-end figures.

Example

A retailer with $1,200,000 of cost of goods sold, $180,000 of inventory at the start of the year and $220,000 at the end:

  • Average inventory: $200,000
  • Inventory turnover: 1,200,000 ÷ 200,000 = 6 times a year
  • Days inventory outstanding: 365 ÷ 6 = 61 days
  • Average stock equals about 2 months of sales at cost

Interpreting the result

A higher turnover generally means less cash tied up and fresher stock, but too high a turnover can signal frequent stockouts and lost sales. A low turnover may point to overstocking, slow-moving or obsolete items, or weak sales. What counts as good depends heavily on the industry: grocery stores and restaurants may turn inventory 15 to 30 times a year, while furniture, jewelry and machinery businesses may turn it only 2 to 4 times.

Improving turnover

  • Review slow-moving items regularly and discount or discontinue them.
  • Order more often in smaller quantities, using the economic order quantity as a guide.
  • Improve demand forecasting and agree shorter lead times with suppliers.
  • Track DIO together with receivable and payable days: together, they make up the cash conversion cycle.

Frequently asked questions

How is inventory turnover calculated?

Divide the cost of goods sold for the period by the average inventory, which is usually the average of the opening and closing inventory. A turnover of 6 means the stock is sold and replaced 6 times a year.

What are days inventory outstanding?

The average number of days items stay in stock before being sold: days in the period ÷ turnover. With a turnover of 6, that is about 61 days.

What is a good inventory turnover?

It depends on the industry. Grocery stores often turn their stock 15 times or more a year, while jewelers, furniture stores and heavy equipment dealers may turn it 2 to 4 times. Compare with your own history and similar businesses.

Why use cost of goods sold instead of sales?

Inventory is recorded at cost, so dividing cost of goods sold by inventory compares like with like. Using sales inflates the ratio by the profit margin.

Was this calculator helpful?

Thanks for your feedback!

Results are estimates provided for information purposes. They do not replace professional advice.

Related calculators