How efficiently is your business managing inventory? Inventory turnover ratio tells you how many times you sell and replace your stock over a period, while days of inventory on hand (DSI) shows how long products sit before being sold. Together, these metrics reveal whether you're tying up too much cash in slow-moving goods or risking stockouts by running too lean.

Whether you're a retail store owner analyzing product performance, a warehouse manager optimizing stock levels, a financial analyst evaluating company efficiency, or a business student learning inventory management, understanding these ratios is essential. High turnover generally indicates strong sales and efficient operations, while low turnover may signal overstocking, obsolete inventory, or weak demand.

There's no universal "good" inventory turnover—it varies dramatically by industry. Grocery stores might turn inventory 12+ times per year due to perishables, while furniture retailers turn inventory only 2-4 times. The key is comparing your metrics to industry benchmarks and your own historical performance.

Our Inventory Turnover Calculator lets you input cost of goods sold (COGS) or net sales, beginning and ending inventory, and period length to instantly calculate turnover ratio, days on hand, and average inventory. Visualize the relationship between turnover and holding period with our interactive chart.

What is Inventory Turnover Ratio?

Inventory turnover measures how many times a company sells and replaces its inventory during a specific period. It's a key efficiency metric that helps businesses understand how quickly they convert inventory into sales. A turnover of 6 means the inventory was sold and restocked 6 times during the period.

COGS-Based vs. Sales-Based Turnover

What is Days Sales of Inventory (DSI)?

Days Sales of Inventory (also called Days Inventory Outstanding or Days on Hand) represents approximately how many days it would take to sell through current inventory at the average sales rate. Lower DSI means faster inventory movement; higher DSI means products sit longer.

Calculating Average Inventory

Average inventory is typically calculated using beginning and ending inventory values for the period:

For more accuracy with seasonal businesses, use weighted averages or monthly inventory snapshots throughout the period.

Industry Benchmarks

Follow these steps to calculate your inventory turnover and days on hand:

1. Select Calculation Basis: Choose whether to use Cost of Goods Sold (COGS) or Net Salesin your calculation. COGS is the standard accounting method; use Net Sales only if COGS isn't available.
2. Enter COGS or Net Sales: Input your total cost of goods sold (or net sales) for the period you're analyzing. This is typically found on your income statement.
3. Enter Beginning Inventory: Input the inventory value at the start of your period. This is found on your balance sheet as of the period's start date.
4. Enter Ending Inventory: Input the inventory value at the end of your period. This is found on your balance sheet as of the period's end date.
5. Enter Period Length (Days): Input the number of days in your analysis period:
   • 365 days for annual analysis
   • 90 days for quarterly analysis
   • 30 days for monthly analysis
6. Optional: Override Average Inventory: If you have a more precise average inventory value (e.g., from monthly snapshots), you can enter it to override the simple average calculation.
7. Click "Calculate" and Review: The calculator displays:
   • Average Inventory value
   • Inventory Turnover Ratio
   • Days of Inventory on Hand (DSI)
   • Turnover vs. Days on Hand chart
   • Industry comparison context

Step-by-Step Calculation

The Inverse Relationship

Full Example Calculation

Converting Between Periods

• Comparing Different Calculation Methods: COGS-based and sales-based turnover produce different numbers. Always compare using the same method. Industry benchmarks typically use COGS.
• Using Mismatched Periods: COGS must match the inventory period. Annual COGS should use beginning and ending inventory for the same year. Mixing Q4 inventory with full-year COGS produces meaningless results.
• Ignoring Seasonality: Simple average of beginning and ending inventory can be misleading for seasonal businesses. A retailer might have $50K inventory in February and $500K in November—the average doesn't capture reality.
• Comparing Across Different Industries: A turnover of 3× is excellent for furniture but poor for groceries. Always compare within your industry, not across industries.
• Assuming Higher Turnover is Always Better: Very high turnover might indicate chronic understocking, leading to stockouts, lost sales, and customer frustration. Balance efficiency with service levels.
• Forgetting Inventory Valuation Methods: FIFO, LIFO, and weighted average methods produce different inventory values, affecting turnover calculations. Be consistent with your accounting method.
• Looking Only at Aggregate Numbers: Company-wide turnover hides SKU-level problems. One slow-moving product line can drag down overall metrics while being masked by fast movers.

• Calculate at SKU or Category Level: Aggregate turnover hides underperformers. Calculate turnover for individual products or categories to identify slow movers for markdown or discontinuation.
• Use Weighted Average Inventory: For more accuracy, calculate monthly ending inventory values and average them, rather than using just beginning and ending values.
• Track Turnover Trends Over Time: A single turnover number is less meaningful than the trend. Is turnover improving or declining quarter over quarter? Trends reveal operational changes.
• Connect to Cash Conversion Cycle: Inventory turnover is one component of the cash conversion cycle (DSI + DSO - DPO). Analyze all three together for complete working capital understanding.
• Set Category-Specific Targets: Don't apply one turnover target to all products. Staples should turn faster than specialty items. Set realistic targets by category.
• Monitor Safety Stock Impact: Safety stock reduces turnover but prevents stockouts. Find the balance between efficiency (high turnover) and service level (adequate stock).
• Consider Gross Margin Return on Investment (GMROI):Combine turnover with gross margin to understand profitability per dollar of inventory investment. GMROI = Gross Margin % × Turnover.

• Simple Average Method: Uses basic average of beginning and ending inventory, which may not capture seasonal fluctuations.
• Single Period Analysis: Calculates for one period only. Rolling or multi-period calculations may show different patterns.
• Aggregate Level: Shows company-wide or category-wide turnover, not SKU-level detail.
• Accounting Method Assumptions: Results depend on how inventory is valued (FIFO, LIFO, weighted average). Different methods produce different turnover ratios.
• Educational Purpose: This calculator provides estimates for learning and planning. Formal financial reporting may require different calculation methods per accounting standards.

The information in this guide is based on established inventory management principles and authoritative sources:

• U.S. Small Business Administration (SBA) - Inventory management best practices: sba.gov
• Financial Accounting Standards Board (FASB) - Inventory valuation standards (ASC 330): fasb.org
• U.S. Securities and Exchange Commission (SEC) - Financial statement analysis: sec.gov
• American Institute of CPAs (AICPA) - Inventory accounting guidance: aicpa.org