Inventory Turnover
COGS to average inventory.
These tools are provided for educational and operational guidance only. Results are estimates and may not reflect all factors in your business. Always review calculations and use your own professional judgement before making decisions.
What is this tool?
The Inventory Turnover calculator shows how many times per period you sell through and replace your inventory. It is a key indicator of how efficiently you use working capital tied up in stock.
Formula
The tool uses the standard formula:
Inventory turnover = COGS ÷ average inventory
- COGS = cost of goods sold over the period (same period as the inventory data).
- Average inventory = typical inventory level over the period (e.g., (beginning + ending) ÷ 2).
A higher turnover typically means stock is moving faster, but extremely high turnover can signal risk of stockouts.
Example
Suppose annual COGS is 120,000 and average inventory is 30,000.
Inventory turnover = 120,000 ÷ 30,000 = 4 times per year.
That means you cycle through your average inventory level roughly four times per year. You can compare this to industry benchmarks or to your own targets.
When should you use this tool?
- When tracking how well you convert inventory investment into sales.
- When comparing performance between categories, warehouses, or time periods.
- When preparing working-capital or cash-flow discussions with finance.
- When assessing the impact of changes in lead times, batch sizes, or assortments.
How this tool helps your business
- Highlights slow-moving inventory that ties up capital and warehouse space.
- Supports decisions about assortment pruning, purchasing, and replenishment frequency.
- Connects operational decisions (like EOQ and safety stock) to financial outcomes.
- Helps you set realistic targets for improving stock rotation over time.
Related tools
- Average Inventory Calculator – compute the average inventory input required for this metric.
- EOQ Calculator – adjust order quantities to influence turnover and cash usage.
- ABC Classification – apply different turnover expectations to A, B, and C items.
- Inventory Holding Cost Calculator – translate slow turnover into real holding costs in currency.
Frequently Asked Questions
What turnover value is considered good?
It depends on your industry and product type. Compare against internal history and external benchmarks; very low turnover signals excess stock, very high turnover may indicate stockout risk.
Should I use sales or COGS in the formula?
COGS is preferred because it is directly comparable to inventory value. Using sales can distort the metric if margins vary a lot across products.
Can I calculate turnover by category or supplier?
Yes, and it is often more useful than a single overall figure. Segmenting turnover helps you target specific problem areas in the assortment.
How does turnover relate to days on hand?
Days on hand is typically 365 divided by turnover for annual data. Both metrics describe how quickly stock rotates but in different units (times vs. days).