Inventory Turnover Calculator
Calculate your inventory turnover ratio and days inventory on hand, and see how much cash is sitting on your shelves rather than in your bank account.
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Slow inventory is the most common place small businesses lose cash without noticing. Book a free 30-minute call — we recovered $5M a year for one client by finding exactly this.
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Inventory Turnover = COGS ÷ Average InventoryDays Inventory on Hand = 365 ÷ Inventory Turnover
Use cost of goods sold rather than revenue. Inventory sits on your balance sheet at cost, so dividing revenue by it mixes two different bases and inflates the turnover figure. It is one of the most common errors in this calculation.
What Slow Inventory Actually Costs
Money in stock is money you have already spent and cannot use. But the carrying cost runs well beyond the cash itself — warehousing, insurance, handling, shrinkage, obsolescence, and the interest on whatever financed it. Common estimates put total carrying cost at 20-30% of inventory value per year.
The Cash Released if on Target figure above is the one-off working capital you would free by getting days on hand down to your target. For most product businesses it is the largest single pool of recoverable cash on the balance sheet, and unlike a price rise or a cost cut it requires no customer to accept anything.
Turnover Can Also Be Too High
A rising turnover ratio looks like efficiency and usually is — until it isn't. Very high turnover with thin stock means every supply hiccup becomes a stockout, and a stockout costs you the margin on the sale plus, sometimes, the customer. The goal is not maximum turnover; it is the lowest inventory level that reliably meets demand, which depends on your lead times and how volatile your demand actually is.
Where the Problem Usually Hides
A blended, whole-business turnover number conceals more than it reveals. Most inventory problems live in a specific subset of SKUs: the slow tail that nobody wants to write off, the bulk order someone took on a discount three years ago, the discontinued line still counted at full cost. Run this calculation by product category and the picture usually sharpens immediately.
Read it alongside your quick ratio — the gap between current and quick ratio is precisely your inventory dependence — and your receivables turnover for the full working capital cycle.
Frequently Asked Questions
What is a good inventory turnover ratio?
It varies enormously. Grocery and fresh food can exceed 20x, general retail runs 4-8x, and heavy machinery or jewellery may sit at 1-2x. Compare against your own history and direct competitors rather than a cross-industry average.
Should I use COGS or revenue in the formula?
COGS. Inventory is carried at cost on the balance sheet, so the numerator must be at cost too. Using revenue mixes cost and selling price and overstates your turnover.
Why use average inventory instead of the closing balance?
Closing inventory can be distorted by seasonality or by a large delivery arriving just before year end. Averaging the opening and closing figures produces a more representative result.
How do I calculate this monthly?
Use monthly COGS and divide 30 by the monthly turnover, or annualise by multiplying monthly COGS by twelve. Monthly tracking catches problems far earlier than an annual figure.