What is the inventory turnover ratio?

The inventory turnover ratio is a financial metric that measures how many times a company has sold and replaced its inventory during a specific period. It is a measure of sales velocity and inventory management efficiency.

Why is a high inventory turnover ratio good?

A high turnover ratio generally indicates strong sales and efficient inventory management. It means the company is not overspending on inventory or holding onto stock for too long, which frees up cash for other parts of the business. However, a ratio that is too high might indicate a risk of stockouts.

What is a good inventory turnover ratio?

A 'good' ratio varies widely by industry. Fast-moving goods like groceries will have a very high ratio (e.g., >10), while businesses selling high-value, slow-moving items like luxury cars or furniture will have a much lower ratio (e.g., 2-4). The key is to compare your ratio to your industry's average and your own historical performance.

Inventory Turnover Ratio Calculator

The Pulse of Your Business Efficiency

Is your inventory flying off the shelves or gathering dust? The **Inventory Turnover Ratio** is the financial metric that gives you the answer. It measures the "pulse" of your sales, telling you how many times your business sells and replenishes its entire stock in a given period. A stronger pulse (a higher ratio) means healthier, more efficient sales.

This calculator also computes your **Days in Inventory**, which translates the ratio into a simple timeframe: how many days, on average, a product sits on your shelf before it's sold. Together, these numbers are vital for managing cash flow, optimizing purchasing, and identifying slow-moving products that are tying up your capital.

Improve Your Operational Insights

Cost of Goods Sold (COGS) Calculator: The first step to finding your turnover ratio is calculating your COGS.
Reorder Point Calculator: Use your sales velocity to determine exactly when to order new stock.
Economic Order Quantity (EOQ) Calculator: Find the optimal order size to minimize holding and ordering costs.

Frequently Asked Questions (FAQ)

What is the formula for Inventory Turnover?

The formula is: Inventory Turnover Ratio = Cost of Goods Sold / Average Inventory. To find Days in Inventory, you then calculate: 365 / Inventory Turnover Ratio.

How do I calculate Average Inventory?

Average Inventory is the mean value of your inventory over a period. The most common way to calculate it is: Average Inventory = (Beginning Inventory + Ending Inventory) / 2. Use the values from the start and end of the same period you used for your COGS calculation (e.g., one fiscal year).

Is a low inventory turnover ratio always bad?

Generally, a low ratio indicates weak sales or overstocking, which is not ideal as it ties up cash. However, context is key. Industries that sell high-value, long-lead-time items (like heavy machinery or fine jewelry) will naturally have lower turnover ratios than a supermarket. The goal is to improve your ratio relative to your industry peers and your own past performance.