Inventory turnover and days of inventory calculator
Inventory turnover shows how many times you sell through your average stock in a period; days of inventory shows how long stock sits before it is sold. Both come from cost of goods sold and your stock value at the start and end of the period.
The inventory turnover formula
Turnover = cost of goods sold ÷ ((opening stock + closing stock) ÷ 2) Days of inventory = days in period ÷ turnover
Use cost of goods sold, not sales: stock is valued at cost, so comparing it with sales at selling prices would flatter the ratio.
The average of opening and closing stock smooths out a period that starts or ends unusually high or low. If stock swings a lot within the period, average the month-end values instead.
Higher turnover means less cash tied up in stock — but too high can mean frequent stockouts. Compare with your own history and with businesses that sell similar goods.
Worked example
A wholesaler’s cost of goods sold for the year was 240,000. Stock at cost was 50,000 at the start and 70,000 at the end, so average stock was 60,000.
Turnover = 240,000 ÷ 60,000 = 4 times a year. Days of inventory = 365 ÷ 4 ≈ 91 days: on average, stock waits about three months before it is sold.
How to use the result
Find slow movers
Work the ratio out per category or item. Low-turnover items are candidates for smaller orders, promotions or delisting.
Free up cash
Every day of inventory you remove releases cash. Cutting 91 days to 75 in the example frees roughly a sixth of average stock.
Watch the trend
A falling turnover is an early warning of over-buying or slowing sales — check it every month or quarter.
Questions and answers
How many times a business sells and replaces its average stock in a period, measured as cost of goods sold divided by average inventory.
How many days stock is held on average before it is sold: the days in the period divided by inventory turnover. It is also called days inventory outstanding.
It depends on what you sell: fresh goods turn many times a month, machinery a few times a year. Compare with your own trend and similar businesses.
Because stock is valued at cost. Using sales would mix selling prices with cost values and overstate turnover.
Order closer to real demand, shorten lead times, clear slow-moving stock and avoid buying large quantities only for small discounts.
Let the app work it out for every item
Cash Flow Inventory posts cost of goods sold from every sale and values stock at any date by FIFO or weighted average, reconciled to the Inventory account. The free plan has no time limit and needs no card.