Inventory turnover

How many times you sell through your average stock in a period.

Inventory turnover measures how many times you sell through your average stock in a period, usually a year. It shows whether stock is moving or building up.

The formula

Turnover = cost of goods sold ÷ average inventory value

An average inventory of $50,000 and annual COGS of $300,000 gives a turnover of 6, or about one turn every two months.

Days of inventory

Turnover converts to a more intuitive number:

Days of inventory = 365 ÷ turnover

A turnover of 6 means roughly 61 days of stock on hand.

Reading the number

High turnover means lean stock and fast cash cycles, but too high risks stocking out. Low turnover means cash is tied up and items may be going stale. Compare against your own trend and your industry, not a universal target.

Calculate yours with the inventory turnover calculator.