Inventory Turnover Calculator
✦ Finance & MoneyThis inventory turnover calculator shows how many times you sold through your inventory in a period: cost of goods sold ÷ average inventory. It is also a days inventory outstanding calculator, turning the ratio into the days stock sits before it is sold, with a prior-period comparison and the sales-based convention kept apart.
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The formula
Inventory turnover (cost of goods sold ÷ inventory) and days inventory outstanding
Inventory turnover = Cost of goods sold ÷ Average inventory | Average inventory = (Beginning + Ending) ÷ 2 | Days inventory outstanding = Days in period ÷ Turnover = Average inventory ÷ COGS × DaysInventory is carried at cost (FASB ASC 330), so the cost of goods sold is the numerator. Average inventory is the default; Advanced switches to ending inventory, the convention the cash conversion cycle page uses by default, so the two pages give the same DIO for the same balances. The day count is 365 by default. Turnover is shown to two decimals and days to one, computed unrounded. The sales-based ratio (net sales ÷ inventory) is shown separately when asked for and is never the headline. No industry benchmark is shown.
Calculating it by hand
- Enter the cost of goods sold for the period, from the income statement.
- Enter beginning and ending inventory, at cost, from the balance sheets at the start and end of the period.
- Enter the days in the period: 365 for a year, 90 or 91 for a quarter, 30 or 31 for a month.
- Read the turnover and days inventory outstanding; the chart cuts the period into turns.
- In Advanced, switch to ending inventory, change or turn off the prior period, or add net sales for the sales-based ratio.
- Download the period table as CSV if you want to keep the figures.
Worked examples
One year with average inventory (the defaults)
Cost of goods sold $600,000; beginning inventory $70,000; ending inventory $80,000; 365 days.Average inventory = ($70,000 + $80,000) ÷ 2 = $75,000.Turnover = $600,000 ÷ $75,000 = 8.00.Days inventory outstanding = 365 ÷ 8.00 = 45.6 days.
8.00 turns a year; 45.6 days of inventory.
The same year on ending inventory (Advanced: end of period only)
Inventory used = $80,000 ending balance.Turnover = $600,000 ÷ $80,000 = 7.50.Days inventory outstanding = 365 ÷ 7.50 = 48.7 days, the DIO the cash conversion cycle calculator shows by default.
7.50 turns; 48.7 days.
A quarter (days 90)
Cost of goods sold for the quarter $150,000; beginning inventory $70,000; ending $80,000; 90 days.Turnover = $150,000 ÷ $75,000 = 2.00 for the quarter.Days inventory outstanding = 90 ÷ 2.00 = 45.0 days.
2.00 turns in the quarter; 45.0 days.
Methodology
How inventory turnover is measured
Cost of goods sold over inventory at cost, a matching period and day count, and a stated choice between average and ending inventory: those three decisions are what make the figure comparable.
Read sources and limitsWhat is inventory turnover?
Inventory turnover is the number of times a business sells through its average inventory in a period: cost of goods sold divided by average inventory. A turnover of 8.00 a year means a typical item waited about 45.6 days before it was sold. Higher turnover means stock moves faster.
The numerator is cost of goods sold, not sales, because inventory is carried at cost (FASB ASC 330). Dividing sales by a cost figure mixes selling prices with costs, so the ratio would move whenever margins move even if nothing about the stock changed.
How do you calculate inventory turnover?
Add beginning and ending inventory and divide by two, then divide the cost of goods sold by that average. With the defaults, ($70,000 + $80,000) ÷ 2 = $75,000 of average inventory and $600,000 ÷ $75,000 = 8.00 turns a year. The cost of goods sold calculator on this site produces the numerator from purchases and inventory counts.
With ending inventory only, the same year gives $600,000 ÷ $80,000 = 7.50 turns and 48.7 days. That is the figure the cash conversion cycle calculator shows by default; choose the convention once and use it every period.
How do you calculate days inventory outstanding?
Divide the days in the period by the turnover, or equivalently average inventory ÷ cost of goods sold × days: 365 ÷ 8.00 = 45.6 days. Days inventory outstanding (DIO), also called days in inventory or days sales of inventory, is the first part of the cash conversion cycle: DIO + DSO − DPO.
The period and the day count must match. For a quarter, use the quarter’s cost of goods sold and 90 or 91 days: $150,000 over a quarter against the same $75,000 of inventory is 2.00 turns and 45.0 days, the same pace as the year. Annual cost of goods sold over 90 days would give a meaningless figure.
How do you read an inventory turnover trend?
One period’s ratio means little on its own; the same business a year earlier is the most useful comparison. The default prior period, $540,000 of cost of goods sold against ($80,000 + $84,000) ÷ 2 = $82,000 of inventory, gives 6.59 turns and 55.4 days, so stock now moves 9.8 days faster.
The chart shows it as more, shorter blocks in the current year. A higher turnover is not always better. It can mean stock-outs or a cheaper product mix, and a lower one can be deliberate stock built ahead of a busy season or a price rise. Published industry figures vary with product, season and how each company measures inventory, so none is typed here.
Why is the sales-based turnover ratio kept apart?
Some analysts and data services divide net sales by inventory instead. Because sales include the margin and inventory is at cost, that ratio is always higher: $900,000 ÷ $75,000 = 12.00 turns and 30.4 days, against 8.00 and 45.6 on cost.
The two cannot be compared with each other, so the calculator shows the sales-based figure only when you ask for it, in its own labelled cell. It is an estimate from your figures, not accounting advice.
Inventory Turnover questions
How do you calculate inventory turnover?
Divide the cost of goods sold by average inventory: $600,000 ÷ (($70,000 + $80,000) ÷ 2) = 8.00. Use inventory at cost, from the balance sheets at the start and end of the same period as the cost of goods sold.
What is the inventory turnover formula?
Inventory turnover = cost of goods sold ÷ average inventory, where average inventory = (beginning + ending inventory) ÷ 2. Some analyses use ending inventory instead; this calculator offers both and names the one used.
How do you calculate days inventory outstanding?
Days in the period ÷ inventory turnover, or average inventory ÷ cost of goods sold × days: 365 ÷ 8.00 = 45.6 days. It is the number of days a typical item sits in stock before it is sold.
What is a good inventory turnover ratio?
One that is stable or improving for your own business: compare the same period year on year. Turnover differs by product, season and inventory method, and published industry figures rarely state how they were measured, so this calculator does not give a target.
Should I use cost of goods sold or sales?
Cost of goods sold, because inventory is carried at cost. Net sales ÷ inventory includes the margin and comes out higher: 12.00 against 8.00 on the defaults. Turn on the sales-based figure in Advanced if a lender or data service asks for it, and label it.
Should I use average or ending inventory?
Average inventory is the usual textbook choice and smooths a seasonal year-end; ending inventory comes straight off one balance sheet. On the defaults they give 8.00 turns (45.6 days) and 7.50 turns (48.7 days). Pick one and use it every period.
What does a high inventory turnover mean?
Stock is sold and replaced quickly: less cash is tied up and less is at risk of going obsolete. Very high turnover can also mean stock-outs and lost sales, so read it with your gross margin and order fill rate.
What does a low inventory turnover mean?
Stock sits longer before it is sold, which ties up cash and raises storage and obsolescence costs. It can also be deliberate, such as stock built ahead of a busy season, so compare it with the same period last year.
Can I calculate inventory turnover for a month or a quarter?
Yes: use that period’s cost of goods sold and its days. $150,000 for a 90-day quarter against $75,000 of average inventory is 2.00 turns and 45.0 days, the same pace as 8.00 turns a year.
How does inventory turnover fit in the cash conversion cycle?
Days inventory outstanding is its first part: CCC = DIO + DSO − DPO. On the shared defaults with average balances, DIO is 45.6 days, DSO 34.5 and DPO 27.4, a cycle of 52.7 days; on ending balances 48.7 + 36.5 − 30.4 = 54.8 days.
Source notes
Method, sources & limitations
Every figure on this page comes from the formula above applied to the values you enter. Nothing is estimated from market data, and no result is a forecast. These are the sources behind the method and any fixed figures it uses:
- FASB ASC 330 — Inventory (inventory at cost; cost of goods sold)
- U.S. Securities and Exchange Commission — Beginners’ Guide to Financial Statements
- IRS Publication 538 — Accounting Periods and Methods (inventories and the cost of goods sold)
Educational information only. Results are estimates produced from the assumptions you enter, and are not financial, tax, legal or medical advice. Check anything that matters against a qualified professional and the cited sources.