Inventory Turnover Formula
The Inventory Turnover formula measures how many times a company sells and replaces its inventory over a specific period, indicating the efficiency of its inventory management and liquidity.
Bottom Line
The Inventory Turnover formula measures how many times a company sells and replaces its inventory over a specific period, indicating the efficiency of its inventory management and liquidity.
Inventory Turnover Calculator
Calculate how quickly your business sells and replaces stock with industry benchmarks.
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Formula
Copy the exact expression or work through it step by step below.
Inventory Turnover = Cost Of Goods Sold / Average Inventory Variables
IT
Inventory Turnover
The number of times inventory is sold and replaced in the period, as a ratio. Higher means stock moves quickly and capital is not tied up; very high can signal stockout risk.
CGS
Cost Of Goods Sold
Cost of Goods Sold for the period, in currency units. The cost basis of inventory actually sold, used rather than revenue so the ratio is not inflated by markup.
AI
Average Inventory
The average inventory value held over the period, in currency units, typically the mean of opening and closing inventory. The denominator.
Step By Step
- 1
Set the baseline case with the real calculator inputs.
Cost Of Goods Sold = $500,000, Beginning Inventory = 80,000, Ending Inventory = 70,000, Period = Annual
- 2
Use cost of goods sold rather than revenue in the numerator, and average opening and closing inventory for the denominator to smooth seasonality.
Opening inventory 80,000 and closing 100,000 average to 90,000.
- 3
Apply the formula and read the first calculator outputs, not just the headline assumption.
The calculator lands with average inventory at 75,000 and a turnover ratio of 6.67 times.
- 4
Re-run as days-on-hand (365 divided by turnover) to translate the ratio into how long stock sits, which is easier to act on.
A turnover of 6 equals about 61 days of inventory on hand.
Worked Example
Inventory Turnover sample case
Cost Of Goods Sold
$500,000
Beginning Inventory
80,000
Ending Inventory
70,000
Period
Annual
Inventory Turnover = Cost Of Goods Sold / Average Inventory using cost of goods sold $500,000, beginning inventory 80,000, ending inventory 70,000, period Annual.
The calculator lands with average inventory at 75,000 and a turnover ratio of 6.67 times.
Common Variations
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Sources & References
- Inventory Turnover — Investopedia
- Inventory Turnover Ratio — Corporate Finance Institute
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Inventory turnover = cost of goods sold ÷ average inventory. Compare your turn rate to retail and DTC benchmarks to free trapped cash.
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