Inventory Turnover Ratio Calculator
How Long Cash Sits on a Warehouse Shelf
Inventory is cash that hasn't converted back into cash yet. The longer it sits unsold, the more capital is tied up in storage, insurance, and the risk of obsolescence or spoilage. Inventory turnover measures how many times, on average, a company sells and replaces its entire inventory balance over a period — and converting that into days on hand makes the number immediately intuitive, even for someone outside accounting.
The Formula
Average Inventory = (Beginning Inventory + Ending Inventory) / 2
Inventory Turnover Ratio = COGS / Average Inventory
Days Inventory Outstanding = 365 / Turnover
Inventory Turnover Ratio = COGS / Average Inventory
Days Inventory Outstanding = 365 / Turnover
A Worked Example
| Item | Amount |
|---|---|
| COGS | $600,000 |
| Beginning Inventory | $120,000 |
| Ending Inventory | $100,000 |
| Average Inventory | $110,000 |
| Turnover | 5.45x |
| Days Inventory Outstanding | 66.9 days |
Where This Calculation Matters
- Working capital management — a slowing turnover rate signals cash getting increasingly tied up in stock, which can strain short-term liquidity even if sales look stable.
- Purchasing and production planning — comparing turnover against industry norms helps determine whether reorder quantities and safety stock levels are set appropriately.
- Obsolescence risk — slow turnover in categories like electronics, fashion, or perishables carries a real risk of markdowns or write-offs, making this a leading indicator worth watching closely.
- Supplier and lender discussions — days inventory outstanding is frequently combined with days sales outstanding and days payable outstanding to compute a company's full cash conversion cycle.
How to Use This Calculator
- Enter Cost of Goods Sold (COGS) for the period.
- Enter Beginning Inventory for the period.
- Enter Ending Inventory for the period.
- Select Calculate to see the turnover ratio and Days Inventory Outstanding.
Related Calculations
Compare how quickly receivables convert to cash with the Accounts Receivable Turnover Calculator, or check overall short-term liquidity with the Quick Ratio Calculator.