Inventory Turnover Calculator
Inventory turnover ratio, days inventory outstanding and the reorder point from lead time and safety stock — with the cost of the cash sitting on your shelves.
Inventory Turnover Calculator: with the default inputs, inventory turnover is 5.5.
Use cost, not revenue. Inventory sits on the books at cost, so dividing revenue by it inflates the ratio by your whole gross margin.
Units of the item you're setting a reorder point for.
The buffer you hold against demand spikes and late deliveries.
How many times a year the whole inventory sells through.
- In words
- Inventory turns 5.5 times a year — about 66 days of stock on hand, $500,000 of cash, and $110,000 a year to carry. Reorder at 661 units.
- Days inventory outstanding
- 66.4
- Weeks of supply
- 9.5
- Average inventory
- $500,000
- Cost of goods sold per day
- $7,534
- Units sold per day
- 32.88
- Reorder point
- 661Place the order when stock on hand falls to this many units.
- Demand during lead time
- 461
- Annual cost of holding this inventory
- $110,000
- Cash released by one extra turn
- $76,923What you'd free up if turnover rose by 1.0 on the same sales.
Assumptions
- Average inventory is a simple two-point average of opening and closing balances; seasonal businesses should use a twelve-month average.
- Demand is treated as constant across the year for the reorder point — no statistical safety-stock sizing.
- Lead time is deterministic; supplier variability is not modelled.
- Carrying cost is a flat percentage of average inventory value, covering storage, insurance, shrinkage, obsolescence and capital.
| Turns a year | Days of stock | Inventory held | Annual carrying cost |
|---|---|---|---|
| 2 | 183 | $1,375,000 | $302,500 |
| 4 | 91 | $687,500 | $151,250 |
| 6 | 61 | $458,333 | $100,833 |
| 8 | 46 | $343,750 | $75,625 |
| 10 | 37 | $275,000 | $60,500 |
| 12 | 30 | $229,167 | $50,417 |
| 16 | 23 | $171,875 | $37,813 |
| 20 | 18 | $137,500 | $30,250 |
At your $2,750,000 of annual COGS. Every extra turn is cash you get back once and carrying cost you save every year afterwards.
How this is worked out
The formula
Inventory turnover = cost of goods sold ÷ average inventory
Average inventory = (beginning inventory + ending inventory) ÷ 2
Days inventory (DIO) = days in year ÷ turnover
= average inventory ÷ (COGS ÷ days in year)
Reorder point = average daily usage × lead time in days + safety stock
Annual carrying cost = average inventory × holding-cost rateOpen How it’s calculated above to see this worked through with your own numbers.
What you enter
- Cost of goods sold (annual)
- Use cost, not revenue. Inventory sits on the books at cost, so dividing revenue by it inflates the ratio by your whole gross margin.in dollars · 0 or more · defaults to 2750000
- Inventory at the start of the year
- A number.in dollars · 0 or more · defaults to 450000
- Inventory at the end of the year
- A number.in dollars · 0 or more · defaults to 550000
- Annual unit sales
- Units of the item you're setting a reorder point for.0 or more · whole numbers only · defaults to 12000
- Supplier lead time
- A number.from 0 to 365 · whole numbers only · defaults to 14
- Safety stock
- The buffer you hold against demand spikes and late deliveries.0 or more · whole numbers only · defaults to 200
- Selling days a year(under More options)
- 365 for a business that sells every day; 250–260 if you only ship on business days.from 1 to 366 · whole numbers only · defaults to 365
- Annual holding cost(under More options)
- Storage, insurance, shrinkage, obsolescence and the cost of the capital tied up — commonly 18–25% of inventory value a year.a percentage · from 0 to 100 · defaults to 22
What you get back
- Inventory turnovermain answer
- How many times a year the whole inventory sells through.
- In words
- Days inventory outstanding
- Weeks of supply
- Average inventory
- Cost of goods sold per day
- Units sold per day
- Reorder point
- Place the order when stock on hand falls to this many units.
- Demand during lead time
- Annual cost of holding this inventory
- Cash released by one extra turn
- What you'd free up if turnover rose by 1.0 on the same sales.
What this assumes
- Average inventory is a simple two-point average of opening and closing balances; seasonal businesses should use a twelve-month average.
- Demand is treated as constant across the year for the reorder point — no statistical safety-stock sizing.
- Lead time is deterministic; supplier variability is not modelled.
- Carrying cost is a flat percentage of average inventory value, covering storage, insurance, shrinkage, obsolescence and capital.
About this calculator
Inventory turnover counts how many times a year you sell through the entire stockroom. It is the cleanest single measure of whether working capital is working: every turn you add is cash that comes off the shelf and back into the bank, permanently, plus the carrying cost you stop paying on it.
Use cost, not revenue
The single most common mistake is dividing revenue by inventory. Inventory is carried at cost, so mixing in your gross margin inflates the ratio — a business with a 45% margin gets a turnover figure about 80% too high, and every comparison against a benchmark becomes meaningless. Cost of goods sold over average inventory. Always.
The second most common mistake is a two-point average across a seasonal year. A toy retailer measured on 31 December has almost no inventory and looks superb; measured on 31 October it looks bloated. If your business swings, average the twelve month-ends.
Turnover, days, and what they mean
Days inventory outstanding is the same fact stated in time: 365 divided by turnover. Turning 5.5 times means about 66 days of stock. DIO is the more useful number in conversation, because it plugs straight into the cash conversion cycle — days inventory plus days receivable minus days payable — which is how long your money is out of your hands.
Sensible ranges vary enormously. Grocery turns 12–20 times, fast fashion 6–10, general manufacturing 4–8, industrial spares and heavy equipment 2–4, jewellery and fine wine below 2 by design. There is no universally good number; the useful comparisons are against your own history and against direct competitors.
The reorder point
The reorder point answers a different question: at what stock level do I place the next order? It is demand during the supplier's lead time plus a safety buffer. At 12,000 units a year, 33 a day, a 14-day lead time and 200 units of safety stock, you reorder at 661 units. Push safety stock too low and you take stockouts; push it too high and you have quietly reversed all the cash benefit of turning quickly.
This calculator uses average demand. If your demand or your lead time is volatile, size safety stock statistically instead — z × σ of demand over the lead time, where z is 1.65 for a 95% service level — rather than picking a round number.
Where the ratio misleads
Turnover says nothing about what is turning. A company with 6 turns overall might have half its stock moving 20 times and the other half not moving at all; the average conceals the dead stock that will eventually be written off. Slice the calculation by SKU or category before you conclude anything. High turnover achieved by running empty is also not a win: stockouts cost the full gross margin on the lost sale, which almost always exceeds the carrying cost saved. And the ratio is sensitive to the costing method — LIFO in a period of rising prices reports lower inventory and therefore higher turnover than FIFO on identical operations.
Frequently asked questions
▸Should I use revenue or COGS in the inventory turnover formula?
COGS. Inventory sits on the balance sheet at cost, so using revenue inflates turnover by your entire gross margin and makes benchmarking useless. The only reason anyone uses sales is that it's easier to find in a summary.
▸What is a good inventory turnover ratio?
It depends entirely on what you sell. Grocery 12–20, fast fashion 6–10, general manufacturing 4–8, industrial equipment 2–4, jewellery under 2. Compare against your own trend and direct competitors, never against a cross-industry average.
▸How do I calculate the reorder point?
Average daily usage × supplier lead time in days, plus safety stock. At 33 units a day and a 14-day lead time you need 461 units to cover the wait; add a 200-unit buffer and you reorder at 661.
▸How much safety stock should I hold?
Enough to cover the variability, not the average. The statistical version is z × the standard deviation of demand over the lead time — z = 1.65 for a 95% service level, 2.33 for 99%. Flat percentage-of-demand rules over-stock steady items and under-stock volatile ones.
▸Does high inventory turnover always mean the business is well run?
No. Turnover rises when you run out of stock, and a stockout costs the full gross margin on the lost sale — usually far more than the carrying cost you saved. Track turnover alongside fill rate, and look at turns by SKU, because a healthy average can hide dead stock.
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The questions people ask next to a inventory turnover.
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EBITDA built up from net income or down from revenue, with margin, adjusted EBITDA and an honest cash-conversion check — because EBITDA is not cash flow.
Gross margin, markup and profit from cost and price — or the selling price for a target margin — with the margin-vs-markup table that trips everyone up.
Units and revenue needed to break even from fixed costs, price and variable cost per unit, plus contribution margin and a target-profit option.
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