Inventory turnover calculator

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Inventory days:

Inventory turnover:

Average inventory:

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This inventory turnover calculator can help you determine whether you’re effectively managing your inventory turnover and maintaining a good inventory turnover ratio for your industry.

How to Use the Inventory Calculator

Before you can perform an inventory turnover calculation, you’ll need to collect the following information:

Cost of goods sold: The cost of goods sold (COGS) is the amount you spent to purchase inventory. This doesn’t include overhead and marketing, which are considered indirect costs. Higher COGS leads to lower profit margins.
Beginning inventory: Beginning inventory, also known as opening inventory, is the inventory at the beginning of the period.
Ending inventory: Ending inventory, also known as closing inventory, is the inventory at the beginning of the period.
Period: The period is a selected timeframe. Depending on your business needs, this can vary between months, quarters, or a year.

Once you have this data available, input the details into the calculator and hit calculate to receive results.

What is inventory turnover?

Inventory turnover measures the number of times products in inventory are sold during a specific time period. Businesses will often calculate inventory turnover to see if they have excess inventory when looking at the current sales levels.

Certain businesses may see periodic fluctuations in their sales, which could be influenced by either market trends or seasonality. For example, a retail business that sells swimwear might monitor their inventory turnover rate to see when shopping habits shift due to cooler temperatures.

Improving a low inventory turnover ratio can benefit your business in the following ways:

Better cash flow: If you have too much inventory, then there will be tighter cash flow. Generally speaking, strong sales and a balanced inventory ratio will help increase cash flow.
Improved inventory management: A high inventory turnover ratio can help reveal trends in market demand and give you better insight into improving your overall inventory balances. If you’re currently struggling with inefficient inventory management, it could lead to lost sales opportunities and higher direct costs.
Lower risk of obsolete inventory: High turnover ratio will help keep a product from becoming obsolete because it illustrates higher consumer demand for the current product. Holding costs can quickly become an issue if inventory becomes obsolete before you can sell it.
Improved customer satisfaction: An increase in product availability and guaranteed deliveries within a reasonable timeframe will improve customer satisfaction scores and the number of goods sold.
Higher operating profit: Quicker sales cycles lead to more revenue and greater profitability. This is especially important if you have a higher cost of goods sold.
Reduced carrying costs: You’ll have lower holding costs as you improve your company’s inventory management and achieve a higher inventory turnover ratio.

Inventory Turnover FAQ

After using the calculator, it’s common for business owners to have questions about their inventory turnover ratios and how that information relates to overall business performance. Let’s review some frequently asked questions about inventory turnover ratios and how to address low inventory turnover.

What is a good inventory turnover ratio?

The ideal inventory turnover ratio can vary between industries. On average, however, you should aim for a turnover ratio between 5 and 10. With these numbers, your business will be selling and restocking your inventory roughly every one to two months.

It’s also a good inventory ratio that strikes a balance between low stock turnover and restocking too often. If you have a low turnover ratio, there are a few tactics you can use to eliminate excess inventory.

Automate orders

Adding automation will streamline the restocking process to replace goods sold before insufficient inventory becomes a problem. An automated inventory system can also help generate purchase orders, which leaves less room for human error.

Identify industry opportunities

If your company’s cost of goods sold or inventory turnover ratio doesn’t align with the rest of the industry, then there’s potential room for improvement. Addressing your inventory turnover rate can help you take advantage of emerging market trends and identify new opportunities.

Improve pricing strategy

An adjusted pricing strategy could lead to larger profit margins and help you move old unsold inventory out of your warehouse. If products still won’t sell, consider donating for a tax deduction.

Update forecasting

Obtaining current inventory and sales reports can help you estimate quantities needed in the future. For example, if you’ve had weak sales over the last month in a particular category, it could be an early signal that certain products won’t be as popular in the future.

Streamline supply chain

If one of your products is in high demand, a supply chain system with faster and guaranteed delivery times may be a better option for your business. This will create fewer inventory issues down the line and help boost overall sales.

What is the inventory turnover ratio?

Inventory turnover ratio is a measurement of how many times a company sells and replenishes inventory over a set time period.

How to calculate inventory turnover ratio

This inventory turnover ratio formula is easy to use:

Inventory turnover ratio = net sales / average inventory at selling price

For example, if net sales are $50,000 and the average inventory at selling price is $35,000, then this is the resulting inventory turnover ratio:

Inventory turnover ratio = $50,000 / $35,000
Inventory turnover ratio = 1.43

How to calculate inventory turns

This metric can be calculated using the following inventory turns formula:

Inventory turn: cost of goods / average merchandise inventory

For example, if the cost of goods is $20 and the average merchandise inventory is 250, then this is the inventory turn:

Inventory turn = $20 / 250
Inventory turn = 0.08

What is average inventory?

Average inventory is also known as the mean value of inventory during a given period. It represents the estimated value of a certain set of goods.

How to find average inventory

Average inventory can be calculated using the following formula:

Average inventory = (beginning inventory + ending inventory) / 2

For example, if the beginning inventory for a retail company is 10,000 and the ending inventory is 2,200, then this is the average inventory:

Average inventory = (10,000 – 2,200) / 2
Average inventory = 7,800 / 2
Average inventory = 3,900

This is an important calculation for your overall strategy because it will help forecast future needs and eliminate the potential for inadequate inventory. It can also help you anticipate consumer demand.

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