TAHA Engineering Toolsby TAHA Knowledge Lab

Industrial & Manufacturing

Inventory Turnover Calculator

Inventory turns and days of inventory on hand from cost of goods sold.

Inputs

Calculate from
Flow diagram: purchases or production flow into an inventory box holding the average inventory, and flow out as cost of goods sold.Averageinventorypurchases /productioncost ofgoods soldTurnover = COGS ÷ average inventoryDays on hand = days in period ÷ turnover
Goods flow into inventory and out as cost of goods sold. Turnover = cost of goods sold ÷ average inventory: how many times the average stock was used up and replaced in the period. Diagram not to scale.

Use cost, not sales revenue. Any currency — but use the same currency for every value.

365 for a year, about 91 for a quarter, 30 for a month.

Result

Inventory turnover
6times in the period
Days of inventory on hand
60.8333days
Average inventory
200,000(currency)

Inventory was used and replaced about 6 times in the period. On average, stock sat for about 60.8333 days before being used or sold.

Educational estimate — check the assumptions below.

About this calculator

Inventory turnover shows how many times your average stock was used up and replaced during a period. Higher turnover usually means less money tied up in stock; very high turnover can also mean a risk of stock-outs. Days of inventory on hand turns the same figure into an easier picture: how many days, on average, stock waits before it is used.

Formula

Average inventory = (Beginning inventory + Ending inventory) ÷ 2

Inventory turnover = Cost of goods sold ÷ Average inventory

Days on hand = Days in period ÷ Inventory turnover

All values in the same currency. Turnover is a ratio and has no unit.

Worked example

For one year (365 days): cost of goods sold 1 200 000; inventory 180 000 at the start and 220 000 at the end.

  • Average inventory = (180 000 + 220 000) ÷ 2 = 200 000
  • Turnover = 1 200 000 ÷ 200 000 = 6 times per year
  • Days on hand = 365 ÷ 6 = 60.8 days

Assumptions and limitations

  • Cost of goods sold and inventory must be valued on the same basis (both at cost, same currency, same accounting method). Using sales revenue instead of COGS inflates turnover and is not the same measure.
  • A simple average of two balances can hide large swings during the period. Averaging monthly balances gives a better picture.
  • Compare turnover only between periods of the same length, or between similar businesses — good values vary widely by industry.

References

  • Standard inventory-turnover and days-inventory-outstanding definitions used in operations and financial analysis.