What is inventory turnover?
Inventory turnover is how many times a business sells and replaces its inventory in a period, usually a year. Higher turnover means stock converts to sales faster and less cash sits on the shelf.
Inventory turnover formula
Use cost of goods sold rather than revenue, so both sides are valued at cost:
Inventory turnover = cost of goods sold ÷ average inventory value
Average inventory is usually the opening value plus the closing value, divided by two.
An inventory turnover example
Here is how to calculate inventory turnover with real numbers. A shop has annual cost of goods sold of $600,000, opening inventory of $140,000 and closing inventory of $100,000. Average inventory is $120,000, so turnover is 600,000 ÷ 120,000 = 5 times a year.
Inventory turnover vs days of inventory
Days of inventory turns the ratio into time: 365 ÷ turnover. A turnover of 5 means stock sits for about 73 days on average. Both say the same thing; days are easier to compare with supplier lead times and payment terms.
What is a good inventory turnover ratio?
It depends on what you sell. Grocers turn their stock many times a year; furniture and industrial parts far fewer. Compare yourself with your own history and with businesses selling similar goods, and look at turnover per item: an average can hide fast sellers that keep running out next to dead stock that never moves.
Last reviewed 2026-11-01.