Inventory turnover calculator

4 min read
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Every business owner knows that managing a profitable business means paying attention to details, which includes strict inventory management. Inventory turnover is a key metric in helping business owners stay on top of their inventory. 


What is inventory turnover? 

Inventory turnover is the ratio business owners use to determine how many times an item of inventory is sold/consumed within a given period of time. It is often also referred to as stock turnover or stock or inventory turns. 

How To calculate inventory turnover 

If you want to know how to calculate inventory turnover, you will need the formula. The inventory turnover formula is simple to use yourself. 

Inventory turnover = Cost of goods sold (COGS) ÷ Average inventory

COGS can be calculated using your annual income statement or our COGS calculator. Calculate your average inventory using our average inventory calculator.

If you’d prefer to calculate it yourself, simply add your inventory at the start of the month to your inventory at the end of the month, and divide by two. As a formula, this is:

Average inventory = (Inventory at start of month + Inventory at end of month) ÷  2

While everyone should be familiar with the formula for an accurate inventory turnover calculation, you can easily calculate inventory turnover by using an Inventory Turnover Calculator. 

You can also calculate your inventory turnover ratio by factoring in the number of days it takes to shift inventory. You can calculate this by dividing the cost of goods sold by your inventory and multiplying by 365 (days). If you're holding 5,000 inventory and have 30,000 in COGS this equates to 60.8 days for inventory turnover. 5,000/30,000 x 365. 

How to use the calculator 

Use your financial statement to find the correct facts and figures necessary to use the calculator to determine the inventory turnover. Once you have everything you need, you can simply input the COGS figure, beginning inventory, and ending inventory. The calculator will do the rest for you.

How QuickBooks can help

Managing inventory can be difficult, especially with so many moving parts. QuickBooks helps your business keep track of these moving parts and stay on top of your inventory with features like real-time stock value tracking, low stock alerts, order tracking and more. Visit our pricing page to find a plan that is right for your business or get a 30-day free trial.   

Visit our free tools and templates hub to find more free assets that can help you run and grow your business. 

Frequently asked questions

How do I work out my inventory turnover calculation?

There are two ways to calculate inventory turnover. The first is to divide your annual sales by your average inventory balance. Alternatively, you can use the more accurate option, which is dividing your COGS by your average inventory.

What is classed as a good inventory turnover?

This all depends on what industry you operate in. Industries that stock inexpensive products generally have a higher inventory turnover. Businesses that stock high-value items have a higher holding cost and generally a lower inventory turnover. For example, a jewellery store won't cycle through its inventory as quickly as a supermarket. You need to compare your ratio to your industry competitors to know whether it's good. 

Is high inventory turnover good or bad?

The majority of businesses aim for a high turnover because it suggests strong sales and reduces how much capital is tied up in excess inventory. This improves financial strength and avoids the risk of damaged or spoiled products. However, there are situations where it could mean a company runs the risk of losing sales because products are out of stock, whether it's down to the supply chain or insufficient ordering. A low turnover rate could also highlight poor marketing efforts or an overstocking issue. It ties up company cash, which makes the business more vulnerable to market price drops. Whether high turnover is good or bad will depend on your industry and the context. 

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