How to use the inventory turnover calculator
- Enter your Cost of goods sold, COGS ($) from your income statement, then pick the length of that period in Period the COGS covers: one year, one quarter or one month.
- Under Inventory balances, choose Beginning and ending and type both balances, or choose Average inventory if you already have one figure, such as the mean of twelve month-end counts.
- Pick your trade in Compare with, or choose My own target and enter Target turns per year.
How inventory turnover is calculated
Average inventory = (beginning inventory + ending inventory) ÷ 2. Inventory turnover = COGS ÷ average inventory. Days inventory on hand = average inventory ÷ COGS × 365, which equals 365 ÷ turns a year. For a quarter or a month the calculator multiplies COGS by 4 or 12 first, so every result is a yearly figure that you can compare with the ranges. The formula is the one in Corporate Finance Institute's inventory turnover guide.
Worked example
The calculator opens with $500,000 of COGS for one year, $70,000 of beginning inventory and $80,000 of ending inventory. Average inventory = ($70,000 + $80,000) ÷ 2 = $75,000.00. Turnover = 500,000 ÷ 75,000 = 6.67 turns a year. Days on hand = 365 ÷ 6.67 = 54.8 days (54.75 before rounding). Apparel and footwear typically turn 4 to 8 times a year, or every 46 to 91 days, so this business sits within the typical range and has $0.00 to free up. Switch Compare with to grocery and convenience (12 to 18 turns) and the same numbers fall below the range, with $33,333.33 of cash you could free up.
Limits to know about
- The typical ranges are rules of thumb gathered from published retail and restaurant guides, and the sources differ by several turns. Treat them as a rough check, not a standard.
- Two balances can hide seasonal swings. If stock peaks before the holidays, average several month-end balances and use Average inventory.
- Average inventory of $0 makes turnover undefined, and COGS of $0 means days on hand cannot be calculated.
- Use COGS and inventory at cost. Mixing in sales or retail prices breaks the ratio.
To check the margin on what you sell, use the profit margin calculator. To set prices from cost, try the markup calculator. To see the sales needed to cover fixed costs, open the break-even sales calculator.
Inventory turnover FAQ
What is a good inventory turnover ratio?
It depends on the trade. Published rules of thumb run from about 3 to 6 turns a year for furniture up to 12 to 18 for grocery, and about 4 to 6 times a month for restaurant food. Compare yourself with your own past quarters and close competitors first, because product mix, markdowns and delivery times change what is healthy.
Is a high inventory turnover always good?
No. Fast turns free cash and cut the risk of dead stock, but a ratio far above your peers can mean you hold too little and lose sales when popular items run out. Read the ratio next to stockouts and backorders.
Why does the calculator use COGS instead of sales?
Inventory is recorded at cost, so cost of goods sold is the matching figure. Sales include your markup, which makes the ratio look better than it is. If you only know sales, multiply them by (1 − gross margin) to estimate COGS.
How do I turn inventory turnover into days?
Divide 365 by the turns a year. The default 6.67 turns gives 365 ÷ 6.67 = 54.8 days. The calculator shows this as days inventory on hand, which is also called days sales of inventory (DSI) or days inventory outstanding (DIO).
Sources: Corporate Finance Institute, Inventory Turnover Ratio (formula); Cleverence, industry standard inventory turns (retail and parts ranges); MarketMan, how much inventory a restaurant should carry (restaurant food). The ranges are rules of thumb from vendor guides, not audited standards. Estimates only, not financial advice.