Professional-grade analysis tool for measuring stock efficiency, calculating inventory turnover ratio, and optimizing working capital management. Real-time computation with industry benchmarking.
Total direct costs of producing goods sold during the period [citation:1][citation:2]
Enter your COGS and inventory values above to receive detailed analysis of your inventory management efficiency.
Where Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2
Also known as Days Sales of Inventory (DSI), this measures average days inventory remains unsold [citation:2]
COGS: $500,000 annually
Beginning Inventory: $80,000
Ending Inventory: $120,000
Average Inventory: ($80,000 + $120,000) ÷ 2 = $100,000
Turnover Ratio: $500,000 ÷ $100,000 = 5.0
DIO: 365 ÷ 5 = 73 days
Healthy turnover for retail
COGS: $1,200,000 quarterly
Beginning Inventory: $300,000
Ending Inventory: $400,000
Average Inventory: ($300,000 + $400,000) ÷ 2 = $350,000
Turnover Ratio: $1,200,000 ÷ $350,000 = 3.43
DIO: 90 ÷ 3.43 = 26.2 days
Monitor for improvement
| Industry Sector | Average Turnover Ratio | Good Performance | Days Inventory Outstanding (DIO) |
|---|---|---|---|
| Grocery & Retail Food | 12-15 turns/year | > 15 turns/year | 24-30 days |
| Fashion & Apparel [citation:4] | 4-8 turns/year | > 8 turns/year | 45-90 days |
| Automotive Parts | 3-5 turns/year | > 6 turns/year | 60-120 days |
| Electronics Retail [citation:1] | 4-6 turns/year | > 8 turns/year | 60-90 days |
| Manufacturing | 4-6 turns/year | > 8 turns/year | 60-90 days |
Indicates strong sales, efficient inventory management, and lower holding costs. However, excessively high turnover may signal stock shortages and missed sales opportunities [citation:2].
Suggests adequate inventory management but potential for optimization. Consider industry seasonality and business strategy when evaluating [citation:8].
May indicate overstocking, weak sales, or obsolete inventory. This ties up working capital and increases holding costs [citation:6].
Use historical sales data and predictive analytics to improve inventory planning accuracy. Implement ABC analysis to classify inventory by value and turnover rate [citation:6].
For slow-moving items, create tiered discounts, bundle with bestsellers, or use as promotional gifts. Fashion industry had $70-140B excess stock in 2023 [citation:6].
Improve coordination with suppliers for better flexibility during demand spikes. Strong relationships can lead to smaller minimum order quantities and better terms [citation:6].
Expand to additional sales channels like Amazon, eBay, or social commerce platforms to move inventory faster. Different channels attract different customer segments [citation:6].
Implement inventory management software that syncs data across all sales channels in real-time. Automated tracking reduces errors and provides accurate stock visibility [citation:6][citation:8].
Improve product discoverability with better SEO, high-quality images, and clear descriptions. Sometimes inventory moves slowly because customers can't find products [citation:6].
Explore our suite of professional financial analysis tools for comprehensive business management:
A "good" inventory turnover ratio varies significantly by industry. For example, grocery stores typically aim for 12+ turns annually, while fashion retailers target 4-8 turns [citation:4]. Electronics retailers often see 4-6 turns as standard [citation:1]. The key is comparing your ratio against industry benchmarks and monitoring trends over time. A ratio of 0.5 is very low, indicating inventory sells less than once per year, while 1.5 means inventory turns every 243 days [citation:1].
Most businesses benefit from monthly or quarterly inventory turnover calculations. Regular monitoring allows you to respond quickly to changes in demand, identify trends, and make timely adjustments to purchasing and sales strategies [citation:8]. Seasonal businesses should calculate turnover for each season separately to account for demand fluctuations.
The standard formula uses Cost of Goods Sold (COGS) because it reflects the actual cost of inventory sold, excluding profit margins. Using sales revenue instead of COGS can distort the turnover ratio, making it appear higher than it actually is. However, if COGS data isn't available, you can use Net Sales ÷ Average Inventory as an alternative, though this provides a less accurate measure [citation:1].
While high turnover generally indicates efficiency, excessively high ratios may signal inventory shortages, missed sales opportunities, or inadequate stock levels. This can lead to stockouts, lost sales, and customer dissatisfaction. It may also indicate purchasing inefficiencies or vulnerability to supply chain disruptions [citation:2].
Low inventory turnover increases several costs: warehousing/holding costs (rent, insurance, transportation per unit), opportunity costs (capital tied up in slow-moving goods), and potential losses from obsolescence or required discounting [citation:2]. The fashion industry's $70-140 billion in excess stock in 2023 illustrates the scale of this problem [citation:6].