Inventory turnover calculator
Inventory turnover is how many times you sell through your average inventory in a year: cost of goods sold ÷ average inventory, where average inventory is (beginning + ending inventory) ÷ 2. Days on hand = 365 ÷ turnover, the number of days your average stock lasts at the current pace of sales.
Use the last 12 months of cost of goods sold, and value inventory at cost, as your balance sheet does.
6.4turns a year
Inventory turnover: cost of goods sold ÷ average inventory.
Your average inventory of $150,000 lasts about 57 days at this pace of sales.
How inventory turnover is calculated
- Take cost of goods sold for the last 12 months from your profit and loss statement.
- Average your inventory value at cost: the start of the period plus the end, divided by 2.
- Divide cost of goods sold by that average. The result is turns a year.
- Divide 365 by the turns for days on hand.
$960,000 ÷ (($172,000 + $128,000) ÷ 2) = 6.4 turns, and 365 ÷ 6.4 = 57 days on hand
If stock swings a lot through the year, a peak season for example, average the month-end balances instead of only the first and last. Two snapshots can miss the months in between.
What carrying less stock would change
At the same cost of goods sold, every dollar of stock you don’t need is cash back in the business and less to store.
Cut too deep and you run out. Size the buffer with the safety stock calculator, time each order with the reorder point calculator, and check whether smaller, more frequent orders pay with the EOQ calculator.
| Average inventory | Turns a year | Days on hand | Cash freed |
|---|---|---|---|
| $150,000 today | 6.4 | 57 | – |
| $135,000 (10% less) | 7.1 | 51 | $15,000 |
| $120,000 (20% less) | 8 | 46 | $30,000 |
| $105,000 (30% less) | 9.1 | 40 | $45,000 |
Common questions
How do you calculate inventory turnover?
Divide cost of goods sold for the year by average inventory at cost, (beginning + ending) ÷ 2. With $960,000 of COGS, $172,000 of inventory at the start of the year and $128,000 at the end, average inventory is $150,000 and turnover is 6.4. Days on hand is 365 ÷ 6.4 ≈ 57 days.
Why use cost of goods sold instead of sales?
Inventory is valued at cost, so COGS keeps both sides of the ratio at cost. Dividing revenue by inventory at cost inflates turnover by your markup.
What is a good inventory turnover?
It depends on what you sell, your margins, your supplier lead times and how many SKUs you carry, so compare it with your own history and plan rather than a general rule. Higher turnover frees cash and cuts storage, but pushed too far it causes stockouts.
What is days on hand?
Days on hand is 365 ÷ turnover: how many days your average inventory would last at the current rate of sales. It is also called days inventory outstanding (DIO) or days sales of inventory (DSI).
Can I calculate turnover for a month or a quarter?
Yes. Divide that period’s cost of goods sold by the average inventory over the period, and use the number of days in the period instead of 365 for days on hand.
Can I use units instead of dollars?
Yes. Units sold ÷ average units on hand gives turnover in units, which is useful for a single SKU. Keep both sides in the same measure.
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