How to Use the Inventory Turnover Calculator
Inventory turnover counts how many times stock was sold and replaced over a year. It divides annual cost of goods sold by average inventory: the higher the number, the faster inventory converts back into cash instead of sitting on a shelf.
The numerator is COGS, not revenue. Inventory is carried at cost, so both sides of the ratio have to be on a cost basis. Using sales inflates turnover by the whole gross margin and makes stock look healthier than it is.
Average inventory is the mean of beginning and ending balances. Retailers that clear stock before the fiscal year closes would show flattering turnover on the ending balance alone, which is exactly what the two-point average corrects for.
Days inventory on hand divides 365 by the turnover figure, giving the average days a unit waits before it sells. This page divides by the rounded turnover shown on screen so the two numbers stay consistent. Compare against peers and your own history, since normal ranges vary widely by industry.
Frequently Asked Questions
Usually, but pushing it too high often means stockouts and lost sales. Read it alongside your out-of-stock rate and set a target that accounts for reorder cycles and supplier lead times.
For a business without strong seasonality it is close enough for a rough read. If stock is deliberately drawn down at year end, turnover will come out too high, so the beginning-and-ending average is the safer basis.