Inventory Turnover Calculator
Inventory turnover ratio measures how many times a company sells and replaces its inventory during a period. A higher turnover indicates efficient inventory management and strong sales, while a lower turnover may suggest overstocking or weak demand.
Input Parameters
Formula
Inventory Turnover = Cost of Goods Sold (COGS) / Average InventoryThis ratio divides the cost of goods sold by the average inventory value during the same period. It shows how efficiently inventory is being converted into sales.
Variable Definitions
Cost of Goods Sold
The direct costs of producing goods sold during the period (materials, labor, etc.).
Average Inventory
Average inventory value = (Beginning Inventory + Ending Inventory) / 2
Days Sales of Inventory
How many days it takes to sell average inventory = 365 / Turnover Ratio
Example Calculation
Scenario: A retail company wants to evaluate inventory efficiency: - Cost of Goods Sold: $2,000,000 - Beginning Inventory: $300,000 - Ending Inventory: $400,000 Calculation: 1. Average Inventory = ($300,000 + $400,000) / 2 = $350,000 2. Inventory Turnover = $2,000,000 / $350,000 = 5.71 times The company turns over its inventory 5.71 times per year, or roughly every 64 days.
How to Interpret Your Result
Interpreting your inventory turnover ratio: • Industry benchmarks vary significantly - compare to your specific sector • General retail: 8-12 turns/year is healthy • Grocery: 15-25 turns/year (perishables) • Fashion: 4-6 turns/year • A very high turnover might indicate insufficient inventory levels • A very low turnover suggests overstocking, obsolescence risk, or weak demand • Track trends over time rather than focusing on a single period