Inventory Turnover

Inventory turnover shows how many times a business sells and replaces its stock in a period.

Higher turnover usually means efficient buying and less cash tied up in stock. Very high turnover can also signal frequent stockouts.

Days of inventory, the average number of days stock is held, is another way to express the same idea.

Formula

Inventory turnover = COGS ÷ Average inventory

Days of inventory = Days in period ÷ Inventory turnover

With 180,000 in COGS and 45,000 average inventory, turnover is 4 times a year, or about 91 days of inventory.

COGS ÷ inventory → turnover.

Turnover ratio and days of inventory.

Sales + lead time → reorder.

Reorder point and safety stock.

What is a good inventory turnover?

It depends on the industry; compare with your own history.

Should I use COGS or sales?

COGS gives a more accurate ratio.