Inventory turnover measures how many times average inventory is consumed or sold through during a period. For cost-based analysis, use COGS ÷ average inventory at cost for the same reporting period.
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Inventory turnover formula
Inventory Turnover = COGS ÷ Average Inventory
When only beginning and ending inventory are available, a common approximation is Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2. For seasonal businesses or inventories that fluctuate sharply, averaging monthly or more frequent balances can be more representative.
Example: COGS of 1,200,000 and average inventory of 200,000 gives turnover of 6.0 times. Over a 365-day year, the reciprocal interpretation is approximately 60.8 days of inventory (365 ÷ 6).
What does a high or low turnover mean?
A higher turnover can indicate faster inventory movement or leaner average inventory, while a lower turnover can reflect slower movement or a larger inventory investment. Neither is automatically good or bad. Stockout risk, service targets, lead times, product margins, seasonality, perishability and business model all affect the appropriate level.
Avoid universal claims such as “8 turns is good.” Compare like-for-like products, periods and businesses, and investigate the operational reason behind changes.
COGS vs sales revenue
For a cost-based inventory denominator, COGS is generally the internally consistent numerator. Revenue-based turnover can also be calculated for a specific analytical purpose, but it should be labelled clearly and should not be compared directly with a COGS-based turnover ratio as though they were the same metric.
Turnover vs days inventory outstanding
For a period with N days, an approximate reciprocal measure is Days Inventory = N ÷ Inventory Turnover. This is a ratio-based conversion of the same COGS and average-inventory inputs; it is not a prediction that every SKU remains in stock for that many days. It also should not be confused automatically with accounting definitions of days inventory outstanding that may use a particular convention for annualization or reporting-period COGS.
Related tools
Use ABC Analysis to identify high-consumption-value items, FSN Analysis to examine movement patterns, and the Obsolescence Cost Calculator to estimate excess-stock exposure. For batch-size implications, see the Cycle Stock Calculator.
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