How is inventory turnover ratio calculated?

Inventory Turnover Ratio = Cost of Goods Sold (COGS) ÷ Average Inventory. For example, if COGS is 500,000 and average inventory is 100,000, the turnover ratio is 5.0 — meaning inventory is sold and replaced 5 times per year.

What is days sales of inventory (DSI)?

Days Sales of Inventory (DSI) = 365 ÷ Inventory Turnover Ratio. It measures the average number of days it takes to sell through inventory. Lower DSI indicates faster-moving inventory.

What is a good inventory turnover ratio?

A good ratio varies by industry. Grocery stores may have turnover of 12–15, while luxury goods may be 2–4. Generally, a higher ratio indicates efficient inventory management, but too high may mean frequent stockouts.

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Inventory Details

Turnover Analysis

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Days Sales of Inventory (DSI) 0

Inventory Sold Per Month 0

Cost of Goods Sold 0

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COGS Scenario Turnover DSI (days)

What is Inventory Turnover?

Inventory turnover is a financial ratio that measures how many times a company sells and replaces its inventory during a given period (usually a year). A higher turnover indicates strong sales or efficient inventory management, while a lower turnover may suggest overstocking or weak demand.

Inventory Turnover Formulas

Inventory Turnover Ratio:

Turnover = Cost of Goods Sold (COGS) ÷ Average Inventory

Average Inventory:

Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2

Days Sales of Inventory (DSI):

DSI = 365 ÷ Inventory Turnover Ratio

Turnover Benchmarks by Industry

Grocery / Perishables: 12 – 20 (fast-moving, short shelf life)
Retail / Fashion: 4 – 8 (seasonal cycles)
Electronics: 5 – 10 (rapid product cycles)
Automotive: 6 – 12 (parts and supply chain dependent)
Luxury Goods: 2 – 4 (high margins, slow turnover)
Manufacturing: 4 – 8 (varies by product type)

Why Inventory Turnover Matters

Cash Flow: Higher turnover frees up cash that would otherwise be tied up in unsold stock.
Storage Costs: Faster-moving inventory reduces warehousing and holding costs.
Freshness: Important for perishable goods and products prone to obsolescence.
Profitability: Efficient turnover supports healthy profit margins.
Investor Confidence: A strong turnover ratio signals effective management to investors and lenders.

Improving Inventory Turnover

Demand Forecasting: Use historical data and trends to predict demand accurately.
Just-in-Time (JIT): Order inventory to arrive as close to the time of sale as possible.
Clear Slow-Moving Stock: Use promotions or markdowns to move stagnant inventory.
Supplier Negotiation: Negotiate shorter lead times and smaller, more frequent deliveries.
ABC Analysis: Classify inventory by value and sales volume to focus management efforts on high-impact items.

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