Inventory Turnover Calculator

Annual COGS: $240K, Avg Inventory: $40K Turnover: 240K / 40K = 6x per year Days on hand: 365 / 6 = 61 days Grade: Healthy

Inventory turnover is a vital financial ratio that reveals how many times a company has sold and replaced its inventory within a specific period, usually one year. Calculated by dividing the Cost of Goods Sold (COGS) by the average inventory value, this metric offers a direct insight into the efficiency of a business's stock management.\n\nA high inventory turnover generally suggests strong sales, effective purchasing, and minimal risk of obsolete or expired stock, indicating that products are moving quickly through the supply chain. Conversely, a low turnover may point to weak sales, excessive inventory levels, poor purchasing decisions, or outdated products, all of which can tie up capital and incur additional storage costs.\n\nUnderstanding this ratio is fundamental for optimizing inventory levels, preventing stockouts or surplus inventory, and ultimately enhancing cash flow and profitability. It is a critical performance indicator for any business dealing with physical goods.