How we calculate inventory turnover
Turnover indicates how many times inventory is replenished in the period. The higher it is, the less capital sits idle in stock.
Use the Inventory Turnover CalculatorFormula
turnover = COGS ÷ average inventory
days of inventory = 365 ÷ turnover
Variables
- COGS
- Cost of goods sold in the period, at cost price.
- average inventory
- Average inventory value for the period, also at cost price.
Step-by-step calculation
- We divide COGS by average inventory to get the number of turns.
- We convert turnover into average days of coverage.
Worked example
Inputs
- COGS: $240,000
- Average inventory: $40,000
Calculation
240,000 ÷ 40,000 = 6
365 ÷ 6 = 60.8
Turnover of 6 times per year, about 61 days of inventory.
Common mistakes
- Using sales revenue instead of COGS, which inflates turnover.
- Using only the ending inventory instead of the period average.
Frequently asked questions
Is high turnover always good?
Not always: very high turnover can indicate stockouts and lost sales from insufficient product.
All values are in US dollars (US$). Results are estimates and do not replace professional advice.