Inventory Turnover Calculator

Inventory turnover tells you how many times you sell through and replace your average stock in a period. Days inventory outstanding (DIO, also called days sales of inventory or days of stock) turns that into the number of days an average item waits on the shelf. Higher turnover, fewer days: less cash tied up in stock.

The formula

average inventory = (inventory at the start + inventory at the end) ÷ 2
or with several counts: average inventory = sum of the counts ÷ number of counts
inventory turnover = cost of goods sold ÷ average inventory
days inventory outstanding = days in the period ÷ turnover = average inventory ÷ cost of goods sold × days

sales-based turnover = sales ÷ average inventory (less accurate)
turns a year = turnover × days in a year ÷ days in the period
unit turnover = units sold ÷ average units in stock
GMROI = (sales − cost of goods sold) ÷ average inventory

stock for a target = cost of goods sold ÷ target turnover
target turnover from target days = days in the period ÷ target days
cash freed = average inventory now − stock for the target
holding cost saved a year = cash freed × holding cost %

days sales outstanding (DSO) = receivables ÷ sales × days
days payables outstanding (DPO) = payables ÷ cost of goods sold × days
cash conversion cycle = DIO + DSO − DPO

Worked example

A shop's cost of goods sold for the year was $600,000. It held $80,000 of stock at the start of the year and $120,000 at the end.

Average inventory = (80,000 + 120,000) ÷ 2 = 200,000 ÷ 2 = $100,000. Turnover = 600,000 ÷ 100,000 = 6 times a year. Days inventory outstanding = 365 ÷ 6 = 60.83 days, or 60.83 ÷ 7 = 8.69 weeks: an item sits on the shelf for about two months before it sells.

The same shop in Advanced mode

Its sales were $900,000. Sales-based turnover is 900,000 ÷ 100,000 = 9 times (40.56 days), which looks better only because sales include the markup. Gross profit is 900,000 − 600,000 = $300,000, so GMROI = 300,000 ÷ 100,000 = $3.00 of gross profit for every $1 of stock.

By count, it sold 12,000 units and held 1,800 at the start and 2,200 at the end: an average of 2,000 units, a unit turnover of 12,000 ÷ 2,000 = 6 and 60.83 days.

To turn its stock 8 times a year it would need an average of 600,000 ÷ 8 = $75,000 of stock (365 ÷ 8 = 45.63 days), freeing 100,000 − 75,000 = $25,000 of cash. At a holding cost of 25% a year, that saves 25,000 × 25% = $6,250 a year.

Customers owe it $90,000 on average and it owes suppliers $50,000. DSO = 90,000 ÷ 900,000 × 365 = 36.5 days. DPO = 50,000 ÷ 600,000 × 365 = 30.42 days. Cash conversion cycle = 60.83 + 36.5 − 30.42 = 66.92 days between paying for stock and collecting the cash.

Notes

• Use the same period for everything. If your cost of goods sold is for a quarter, choose “A quarter”: the turnover is for that quarter, and the calculator also shows turns a year.
• 365 or 360 days. Some analysts use a 360-day year (90-day quarters, 30-day months) to keep sums round. It changes the days, not the turnover.
• Several counts smooth out seasonal peaks. The usual set is 13: the opening count plus 12 month-ends.
• What counts as “good” varies a lot by industry and by product, so there's no single target. Compare against your own history and similar businesses, and look at the trend.
• Very high turnover isn't always good: it can mean too little stock and lost sales. Very low turnover can mean slow or dead stock that needs a markdown.

Standard accounting ratio definitions. Use inventory valued at cost, from your balance sheet or stock system. Results are a guide, not accounting advice.