Inventory Turnover Calculator — Ratio & Days Sales of Inventory
Turnover ratio and days sales of inventory.
Cost of goods sold during the selected period.
Results
- Average inventory
- $150,000
- Inventory turnover ratio(annual)
- 8.00×
- Days sales of inventory (DSI)
- 45.63 days
DSI = 365 days / turnover. Lower DSI means inventory converts to sales faster.
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Inventory turnover formula
Turnover = COGS / Average Inventory, where Average Inventory = (Beginning + Ending) / 2. The ratio tells you how many times your stock has been sold and replaced during the period.
Worked example: a distributor reports $1,200,000 in COGS for the year and carries $150,000 of average inventory. Turnover = $1,200,000 / $150,000 = 8 turns per year. That means the entire inventory cycles through the warehouse about eight times every twelve months.
Days Sales of Inventory (DSI)
DSI converts the turnover ratio into a more intuitive number — how many days the average unit sits on the shelf before it sells. DSI = 365 / Turnover for annual figures (use 90 or 30 for quarterly or monthly windows).
From the example above: 365 / 8 ≈ 45.6 days. In plain English, every item you buy is on average sold within about six and a half weeks. Compare that to your payment terms with suppliers: if vendors are giving you Net 60 but your DSI is 46, you're selling the goods before you even have to pay for them — a free working-capital loan.
Industry benchmarks
Healthy turnover varies enormously by sector. Use these annual turnover ranges as starting reference points:
- Grocery and convenience: 14-25 turns. Perishables force fast cycles.
- Fashion retail: 4-6 turns. Seasonal collections and markdown cycles cap how fast inventory can move.
- Electronics: 8-12 turns. Rapid obsolescence rewards lean stock.
- Automotive parts: 6-10 turns. Long-tail SKUs drag the average down.
- Restaurants (raw materials): 25-50 turns. Food spoils, so kitchens run very tight.
How to improve inventory turnover
- Tighten reorder points. Recalculate min/max levels quarterly using actual demand, not legacy assumptions.
- Drop slow SKUs. Run an ABC/XYZ analysis and discontinue or clearance the bottom decile that contributes <5% of revenue but ties up disproportionate cash.
- Negotiate smaller, more frequent deliveries. JIT replenishment with the same vendor often costs less than carrying two months of safety stock.
- Improve demand forecasting. Even a simple weighted moving average beats gut-feel ordering and slashes overstock.
- Vendor-managed inventory (VMI). Shift the replenishment decision to the supplier, who has better visibility into their own lead times.
FAQs
What is a good inventory turnover ratio?
It depends entirely on the industry. As a broad rule, 4-6 turns per year is healthy for general retail, 8-12 is strong for fast-moving consumer goods and electronics, and 14-25 is normal for grocery. A turnover below 2-3 in most industries signals overstocking or weak demand. Always compare your number to direct competitors and your own historical trend, not a generic benchmark.
Is a higher inventory turnover always better?
Not necessarily. Very high turnover can mean you're running too lean: stockouts, expedited freight costs, lost sales, and unhappy customers. There is a sweet spot where carrying costs are minimized but service levels stay high. If turnover rises while gross margin or fill rate drops, you've likely over-corrected.
How is DSI different from turnover ratio?
They're two views of the same data. Turnover ratio counts how many times inventory cycles through during a period (e.g. 8 times a year). Days Sales of Inventory (DSI) converts that into days — how long the average item sits on the shelf before it sells. DSI = period_days / turnover. An 8× annual turnover equals about 46 days of inventory.
Should I use COGS or sales in the formula?
Use COGS. Inventory is recorded at cost on the balance sheet, so dividing by COGS keeps the numerator and denominator on the same basis. Using sales (revenue) inflates the ratio because revenue includes your markup. Older textbooks sometimes used sales, but COGS is the modern standard and what auditors expect.
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