Inventory Turnover Ratio Formula

What Is the Inventory Turnover Ratio?

The inventory turnover ratio measures how many times a company sells and replaces its inventory over a specific period. It is a clear signal of inventory efficiency and sales performance.

Why The Ratio Matters for Your Business

• Cash‑flow insight: Faster turnover means cash is returned to the business quicker.
• Stock‑holding costs: Lower inventory reduces storage, insurance, and obsolescence expenses.
• Benchmarking: Comparing your ratio to industry averages highlights strengths and weaknesses.
• Decision‑making: Guides purchasing, pricing, and production planning.

Core Formula

The basic calculation is:

Inventory Turnover Ratio = Cost of Goods Sold (COGS) ÷ Average Inventory

Some analysts also use Sales ÷ Inventory when COGS data is unavailable, but COGS provides a more accurate picture of product cost.

Step‑by‑Step Calculation

1. Determine the COGS for the period (usually a fiscal year).
2. Calculate Average Inventory:
   • Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2
3. Divide COGS by Average Inventory.

The result tells you how many times inventory was turned over during the period.

Turning the Ratio Into Days

Many managers prefer to see the metric in days rather than turns. Use the inverse formula:

Days Inventory Outstanding = (Average Inventory ÷ COGS) × 365

This expresses how many days, on average, inventory sits on the shelf before being sold.

Industry‑Specific Benchmarks

Industry	Typical Turnover	Typical Days Inventory
Grocery / Supermarket	8‑12	30‑45
Apparel Retail	3‑5	70‑120
Electronics	2‑4	90‑180
Manufacturing (raw materials)	4‑6	60‑90
e‑Commerce (fast‑moving SKUs)	6‑10	35‑60

Use these ranges as a quick reference when evaluating your own performance.

Practical Example

Imagine a small retailer with the following data for the year:

• Annual Sales: $250,000
• Annual COGS: $160,000
• Beginning Inventory: $12,000
• Ending Inventory: $15,000

Average Inventory = (12,000 + 15,000) ÷ 2 = $13,500

Inventory Turnover = 160,000 ÷ 13,500 ≈ 11.9 turns

Days Inventory Outstanding = (13,500 ÷ 160,000) × 365 ≈ 31 days

This means the retailer replenishes its stock roughly every month, which is healthy for a fast‑moving consumer goods business.

Tips for Improving Your Turnover Ratio

• Analyze slow‑moving items: Discontinue or discount them.
• Refine purchasing: Use demand forecasting to avoid overstock.
• Streamline production: Adopt just‑in‑time (JIT) practices.
• Enhance sales channels: Promote high‑margin items and cross‑sell.
• Monitor regularly: Update the ratio monthly to spot trends early.

Simple Inventory Turnover Calculator (HTML)

Copy the table below into any HTML page or a quick web‑based note to compute the ratio on the fly.

<table border="1" cellpadding="5">
  <tr><th>COGS (Period)</th><td><input type="number" id="cogs" placeholder="e.g., 160000"></td></tr>
  <tr><th>Beginning Inventory</th><td><input type="number" id="beg" placeholder="e.g., 12000"></td></tr>
  <tr><th>Ending Inventory</th><td><input type="number" id="end" placeholder="e.g., 15000"></td></tr>
  <tr><th colspan="2"><button onclick="calc()">Calculate</button></th></tr>
  <tr><td colspan="2" id="result">Result will appear here</td></tr>
</table>
<script>
function calc(){
  var cogs = +document.getElementById('cogs').value;
  var beg = +document.getElementById('beg').value;
  var end = +document.getElementById('end').value;
  var avg = (beg + end) / 2;
  var turnover = (cogs/avg).toFixed(2);
  var days = ((avg/cogs)*365).toFixed(1);
  document.getElementById('result').innerHTML = 'Turnover: '+turnover+' times per year | Days in inventory: '+days+' days';
}
</script>

Use this mini‑tool to test different scenarios without leaving your browser.

Next Steps – Leverage Data‑Driven Templates

Turn your inventory metrics into actionable dashboards:

• Financial Dashboard Excel template – visualise turnover, days inventory, and cash‑flow in one sheet.
• Financial Statements Templates – integrate COGS and inventory balances directly into profit‑and‑loss and balance‑sheet reports.
• Business Plan Template – embed inventory turnover goals into your growth strategy.

These resources make it easy to track performance, set benchmarks, and present clear insights to stakeholders.

Start Optimizing Your Inventory Today

Ready to see your inventory turnover improve? Explore the Financial Dashboard Excel template and turn raw data into fast‑action insights.