Inventory Turnover Calculator
How many times inventory sells through in a period, the days it sits on the shelf, and the cash conversion cycle once collection and payment days are added.
Result
Inventory turnover: 5 times
Two inventory counts give a rough average. More counts through the period give a truer one. No industry figure is given.
- Days in inventory
- 73
- Average inventory
- $168,000.00
https://calcgallery.com/business-investing/inventory-turnover-calculator/
Results are arithmetic estimates based on the assumptions you enter, not accounting, tax, investment or lending advice. Forecasts can be wrong and important decisions should be checked with a qualified adviser. Read the full disclaimer
How to use the Inventory Turnover Calculator
- Choose the period, then enter the cost of goods sold for it.
- Enter inventory at cost at the start and the end of the period.
- Optionally enter how many days customers take to pay and how many days you take to pay suppliers, for the cash conversion cycle.
The formulas
average inventory = (opening inventory + closing inventory) ÷ 2turnover = cost of goods sold ÷ average inventorydays in inventory = days in the period ÷ turnovercash cycle = days in inventory + days to collect − days to pay suppliersA year counts as 365 days, a quarter as a quarter of that and a month as a twelfth.
One average can mislead
Averaging only the opening and closing figures hides what happens in between. A retailer who stocks up for a holiday season and sells through by year end can show a low average and a flattering turnover. If stock swings through the period, average several counts, such as each month-end, and enter that average as both opening and closing.
The cash conversion cycle
Turnover says how long cash is tied up in stock. The cash cycle adds the wait for customers to pay and takes off the time suppliers let you wait. It is the number of days each sale needs to be financed from your own cash. Shortening any part of it frees cash; the working capital calculator shows how much is tied up in total.
With your numbers
- Average inventory = ($180,000.00 + $156,000.00) ÷ 2 = $168,000.00
- Turnover = $840,000.00 ÷ $168,000.00 = 5
- Days in inventory = 365 ÷ turnover = 73
- Cash cycle = days in inventory + 42 − 38 = 77 days
Quick reference
Two inventory counts give a rough average. More counts through the period give a truer one. No industry figure is given.
| Example | Inventory turnover |
|---|---|
| 840,000 COGS, 180,000 to 156,000 | 5 |
| Closing stock 60,000 | 7 |
| Fast turn, paid before paying suppliers | 36.5 |
| One quarter | 1.25 |
| One month | 0.82 |
| No inventory held |
Common questions about the Inventory Turnover Calculator
- Why use cost of goods sold and not sales?
- Inventory is carried at cost, so the ratio should compare cost with cost. Using sales puts your markup into the top of the fraction and overstates turnover. With 1,400,000 of sales against the same 168,000 of average stock, turnover reads 8.33 instead of the true 5.0.
- What does days in inventory mean?
- How long, on average, stock sits before it is sold. It is the days in the period divided by the turnover. A turnover of 5 a year means stock sits about 73 days.
- How can the cash conversion cycle be negative?
- When you sell stock and collect the cash before the supplier bill is due. Stock held 10 days, customers paying in 5 and suppliers paid in 45 gives a cycle of −30 days: suppliers are funding your stock. It is common in retail with card payments.
- What is a good inventory turnover?
- This page does not give one. A grocer and a jeweller should turn stock at very different rates. Compare your own turnover over time, and against what running out of stock would cost you.