How to Calculate Inventory Turnover (Formula, Example, Days)

To calculate inventory turnover, divide your cost of goods sold (COGS) for a period by your average inventory at cost for the same period: inventory turnover ratio = COGS / average inventory. Average inventory is usually (beginning inventory + ending inventory) / 2. A ratio of 6, for example, means you sold and replaced your entire stock six times over the period. Use cost for both numbers and match the timeframe on top and bottom, and the ratio is honest; mix cost with retail price or use a single month's snapshot and it is not.

Turnover is the single clearest read on whether your stock is working or just sitting there. Below is the formula, a worked example, how to turn the ratio into days, and what a good number actually looks like.

What is the inventory turnover formula?

The formula is inventory turnover ratio = cost of goods sold / average inventory. COGS comes from your income statement and is the cost of the units you actually sold over the period. Average inventory smooths out the swings between a full shelf and an empty one, so a single big shipment near your year-end does not distort the result. Take the inventory value at the start of the period, add the value at the end, and divide by two.

One rule matters more than any other: use cost on both sides. Some people divide sales revenue by inventory, which inflates the ratio because revenue includes your margin. That version answers a different question and is not comparable to the standard measure. When you benchmark against a competitor or a past year, confirm you are both using COGS, not revenue.

How do I calculate inventory turnover step by step?

Pull COGS for the period, pull beginning and ending inventory at cost, average the two, then divide. It is four numbers and one division, but each input has to be measured the same way for the answer to mean anything.

1. Get cost of goods sold

COGS is the cost of the inventory you sold during the period, not what you bought or what is still on the shelf. It sits on the income statement. If you run periodic inventory, COGS = beginning inventory + purchases minus ending inventory. If you run perpetual inventory, your system already tracks it per sale. The difference between the two methods is covered in our guide to perpetual versus periodic inventory.

2. Find average inventory at cost

Add the inventory value at the start of the period to the value at the end, then divide by two. Value it at cost, the same basis as COGS. For a seasonal business, a two-point average can still mislead, so averaging the month-end balances across the whole period gives a truer figure. The point is to represent the stock you typically held, not a lucky snapshot.

3. Divide and read the result

COGS divided by average inventory gives the number of times you turned your stock over the period. Higher generally means stock is selling and cash is not trapped; lower means product is aging. But context decides whether the number is good, which is the next section.

A worked inventory turnover example

Say a retailer reports COGS of $600,000 for the year. Inventory was worth $90,000 at the start and $110,000 at the end. Average inventory is (90,000 + 110,000) / 2 = $100,000. Inventory turnover is 600,000 / 100,000 = 6. The business sold and replaced its stock six times in the year. Divide 365 by 6 and you get about 61 days of inventory on hand, meaning a typical unit sat for roughly two months before selling.

How do I convert turnover into days of inventory?

Divide the number of days in the period by the turnover ratio: days of inventory = 365 / inventory turnover. A turnover of 6 becomes about 61 days; a turnover of 12 becomes about 30 days. Days is often easier to act on than the raw ratio because it reads in plain terms: how long a typical unit sits before it sells. We cover the measure in depth in the guide to days of inventory on hand.

What is a good inventory turnover ratio?

There is no universal target; a good ratio depends on your industry and margins. Grocery and fast fashion run turnovers in the double digits because product moves quickly and margins are thin. Furniture, jewelry and industrial parts turn a few times a year and that is normal, since higher margins pay for the slower shelf life. The useful comparison is against your own history and direct competitors, not a magic number. A ratio that is falling year over year is the real warning sign, whatever the absolute level.

Very high turnover is not automatically good either. If the ratio spikes because you are constantly nearly out of stock, you are trading trapped cash for lost sales and stockouts. The goal is a ratio high enough that cash is not sitting idle but backed by enough buffer that you can still fill demand. That balance is what a reorder point and the right safety stock level are for.

Why per-SKU turnover beats a single company number

A company-wide turnover of 6 can hide a healthy catalog carrying a few dead lines, or a warehouse of slow movers propped up by one fast seller. Calculating turnover per SKU or per category shows you which products are turning and which are quietly parking cash, and that is where the decisions live: what to reorder, what to discount, what to drop. The full picture, including the other core metrics, sits in our guide to the inventory turnover ratio.

Turnover is also one line in a larger financial story. The same COGS and inventory figures flow into gross margin and the balance sheet, and investors reading a company's efficiency often start with turnover pulled straight from its filings. If you are analyzing a business rather than running one, tools that turn a ticker into a structured read on the numbers behind a stock lean on exactly these ratios to judge how well management runs its working capital.

Turn the ratio into a plan

Calculating turnover tells you how hard your stock is working. It does not tell you which SKUs to buy more of and which to stop reordering. For that you need a demand forecast per SKU that projects sales over your lead time, so the fast movers stay in stock and the slow ones stop eating cash. That forecasting layer is what Storekeeper is being built to add on top of the counting your current system already does.

To see where you stand right now, paste your current stock and recent sales into the live stock scan at the top of the site. It returns per-SKU verdicts on cover and slow movers, so you can spot the lines dragging your turnover down before you place the next order.