Inventory Turnover & Days of Inventory Calculator

Inventory Turnover Calculator

Inventory Turnover Ratio

Turnover Ratio Interpretation

Days of Inventory Calculator

Days of Inventory

Days of Inventory Explanation

How to Calculate Inventory Efficiency

Inventory Turnover measures how many times inventory is sold and replaced over a period, usually a year. A higher turnover means inventory is sold quickly, indicating efficient operations. The formula is:
Inventory Turnover = Cost of Goods Sold ÷ Average Inventory.

Days of Inventory shows the average number of days inventory stays before being sold. It helps businesses understand how long their cash is tied up in stock. The formula is:
Days of Inventory = (Average Inventory ÷ Cost of Goods Sold) × 365.

Example: If COGS is $50,000 and average inventory is $10,000, turnover = 5. Days of inventory = 73. This means inventory turns 5 times per year and sits for about 73 days before sale.

Explanation of Terms Used

  • Cost of Goods Sold (COGS): The total cost of products sold during a period. It includes direct costs like materials and labor, but excludes indirect expenses.
  • Average Inventory: The average value of inventory held during a period. Calculated as (Beginning Inventory + Ending Inventory) ÷ 2.
  • Inventory Turnover Ratio: Measures how many times inventory is sold and replaced in a year. Formula: Inventory Turnover = COGS ÷ Average Inventory.
  • Seasonal Adjustment Factor: An optional multiplier to account for seasonal changes in sales or inventory levels.
  • Days of Inventory: The average number of days inventory stays before being sold. Formula: Days of Inventory = 365 ÷ Inventory Turnover.

These terms help assess how efficiently a business manages its inventory and cash flow.

FAQ: Inventory Turnover & Days of Inventory

Frequently Asked Questions

A good ratio depends on industry, but generally 5–10 is considered healthy. Higher ratios mean faster sales and less cash tied up in inventory.

Divide 365 by your inventory turnover ratio. For example, if turnover is 5, days of inventory is 73.

It shows how efficiently you manage inventory. Low turnover may mean excess stock or slow sales, while high turnover means efficient operations.

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