What this calculator measures
Inventory turnover divides cost of goods sold by average inventory for the same period. Using COGS instead of sales keeps both numerator and denominator on a cost basis. Days on hand divides days in the period by turnover.
The simple average uses beginning and ending inventory. Businesses with seasonality, rapid growth, or large mid-period changes may need monthly or daily averages for a more representative result.
Common use cases
Use this model when the inputs describe the same decision, period and customer or product scope.
- Calculate inventory turnover and estimated days inventory remains on hand.
- Use the result with the recorded inputs: Cost of goods sold for period, Beginning inventory, Ending inventory, Days in period.
- Compare multiple scenarios before making a ecommerce decision.
Formula
Average inventory is the simple average of beginning and ending inventory for the selected period.
Formula breakdown
- COGS and average inventory should use the same period and valuation basis.
- Average inventory is better than one ending balance when stock changes materially.
Worked example
COGS is $240,000, beginning inventory is $45,000, and ending inventory is $55,000. Average inventory is $50,000, turnover is 4.8 times, and estimated days on hand over 365 days are about 76 days.
Scenario comparison
$600,000 COGS with $150,000 average inventory gives 4.0x turnover.
If inventory rises to $200,000 with COGS unchanged, turnover falls to 3.0x.
How to interpret the result
Higher turnover can indicate efficient selling or insufficient stock. Lower turnover can indicate overstock, seasonality, long production cycles, or obsolete items. Context and service levels matter.
Compare product categories with similar economics and replenishment patterns. A blended ratio may hide stockouts in fast sellers and excess inventory elsewhere.
What a good result looks like
Useful turnover balances availability with carrying cost, obsolescence and stockout risk.
Benchmarks differ widely by category and supply-chain model.
Common mistakes
- Using sales revenue in the numerator when inventory is measured at cost.
- Using a seasonal ending inventory snapshot against full-year COGS.
When this metric can mislead you
High turnover can mean efficiency or chronic stockouts.
Low turnover can reflect safety stock or obsolete inventory.
How to use the result in a decision
Use it to review purchasing, assortment and working-capital efficiency.
Track stockouts and write-offs alongside turnover.
Assumptions and limitations
- COGS and inventory valuation use a compatible cost basis.
- Beginning and ending inventory represent the selected period.
- A simple two-point average is representative.
- Write-downs, consignment, work in process, seasonality, and stockout cost are not separately modeled.