How to Calculate Inventory Turnover
What is Inventory Turnover?
Inventory turnover measures how many times a company sells and replaces its stock in a given period. A higher ratio means inventory is sold quickly; a lower ratio suggests slow-moving stock, potential obsolescence, or overstocking.
Step-by-Step Guide
- 1Calculate COGS for the period (usually annual)
- 2Calculate average inventory: (Opening + Closing inventory) / 2
- 3Inventory turnover = COGS / Average inventory
- 4Days inventory outstanding = 365 / Inventory turnover
Worked Examples
Input
COGS $500k · Average inventory $100k
Result
5.0x turnover (73 days)
Stock turns over every 73 days
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