Inventory Turnover Calculator
Inventory Turnover Ratio
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Average Inventory
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Days Sales of Inventory
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Assessment
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Understanding Inventory Turnover
Inventory turnover ratio measures how many times a company sells and replaces its inventory during a period. The formula is: Inventory Turnover = Cost of Goods Sold / Average Inventory. A higher ratio indicates faster-selling inventory and more efficient inventory management.
Days Sales of Inventory (DSI) converts the ratio into a more intuitive metric: how many days it takes to sell through your inventory. DSI = 365 / Turnover Ratio. A DSI of 30 means you sell through your entire inventory roughly every month. Lower DSI means faster-moving inventory.
Optimal turnover varies dramatically by industry. Grocery stores might turn inventory 15-20 times per year (DSI of 18-24 days). Clothing retailers aim for 4-6 turns. Auto dealers may turn inventory 6-8 times. Too high a turnover might mean frequent stockouts; too low means excess capital is tied up in unsold goods.
Frequently Asked Questions
What is a good inventory turnover ratio?
It depends on industry. Grocery: 15-20x. Retail clothing: 4-6x. Electronics: 6-8x. Manufacturing: 4-8x. Compare your ratio to industry peers for the most meaningful assessment.
How can I improve inventory turnover?
Reduce slow-moving SKUs, improve demand forecasting, negotiate smaller and more frequent orders, run promotions on excess stock, and implement just-in-time inventory practices.
What does low inventory turnover mean?
Low turnover suggests overstocking, poor sales, or obsolete inventory. Capital is tied up in unsold goods, storage costs increase, and products may become outdated or expire.
Should I use COGS or revenue for the calculation?
Use Cost of Goods Sold (COGS) for accuracy since inventory is recorded at cost, not selling price. Using revenue inflates the ratio and can be misleading.