Calculate how many times you sell through your inventory in a year and how many days stock sits on the shelf, to spot slow-moving stock and cash tied up in inventory.
What is inventory turnover?
Inventory turnover shows how many times a business sells and replaces its stock over a period. Higher turnover usually means products sell quickly and less cash is tied up in inventory; very low turnover can signal overstocking or slow-selling items.
Inventory turnover = cost of goods sold ÷ average inventory
Average inventory = (beginning + ending inventory) ÷ 2
Days in inventory = days in period ÷ turnover
Worked example
A store had $480,000 in cost of goods sold over a year. Inventory was $50,000 at the start and $70,000 at the end, so average inventory was $60,000. Turnover is $480,000 ÷ $60,000 = 8 times a year, and stock sits for 365 ÷ 8 = about 46 days on average.
What is a good turnover ratio?
It depends heavily on the industry. Grocery stores turn inventory over very quickly because food is perishable, while furniture or jewelry stores turn over much more slowly. Compare with similar businesses and with your own history.
How to improve turnover
- Identify slow movers and discount or bundle them.
- Order smaller quantities more often, using a reorder point.
- Improve demand forecasting from past sales.
- Use the EOQ calculator to balance ordering and holding costs.
Frequently asked questions
Why use cost of goods sold instead of sales?
Inventory is recorded at cost, so using cost of goods sold compares like with like. Using sales revenue inflates the ratio.
Can turnover be too high?
Yes. Very high turnover can mean you are running out of stock and losing sales.
Related tools
Results are estimates for planning and education. They are not accounting, tax or legal advice. Check important figures with a qualified accountant.