Inventory Turnover Ratio Calculator
Calculate inventory turnover ratio and days inventory outstanding from COGS and average inventory, with industry benchmarks.
Frequently Asked Questions
What is the inventory turnover ratio formula?
Inventory Turnover Ratio = Cost of Goods Sold ÷ Average Inventory, where Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2. It measures how many times a business sells through its entire inventory over a given period, usually a year.
Why use average inventory instead of ending inventory?
Inventory levels fluctuate throughout the year — using only the ending balance can distort the ratio if that snapshot happens to be unusually high or low (e.g., right after a big seasonal restock). Averaging the beginning and ending balances smooths out that timing distortion and gives a more representative figure.
What is a good inventory turnover ratio?
It varies heavily by industry: grocery stores often turn inventory 10–15 times a year due to perishables, apparel/fashion retailers 4–6 times, electronics 6–8 times, auto dealers 8–12 times, and furniture retailers 3–5 times. Compare against your specific industry rather than a universal number.
How do I read "days inventory outstanding"?
Days Inventory Outstanding = 365 ÷ Inventory Turnover Ratio. It converts the turnover ratio into an easier-to-grasp number: the average number of days inventory sits before being sold. A turnover ratio of 8 means roughly 46 days of inventory on hand at any given time.
Can inventory turnover be too high?
Yes. Extremely high turnover can mean inventory levels are too lean, leading to stockouts, missed sales, and unhappy customers when demand spikes unexpectedly. The goal is an efficient balance — fast enough to avoid tying up cash in excess stock, but with enough buffer to meet demand reliably.
How can a business improve inventory turnover?
Improve demand forecasting to avoid overstocking, negotiate smaller and more frequent supplier deliveries (just-in-time), discount or liquidate slow-moving stock, and discontinue chronically poor-selling SKUs that tie up warehouse space and cash.