About

Inventory management dictates cash flow. Holding stock too long ties up capital, while selling too fast may indicate stockouts and lost revenue. This tool calculates the Inventory Turnover Ratio, a critical efficiency metric that reveals how many times a company has sold and replaced its inventory during a given period.

Accuracy in this calculation allows businesses to optimize purchasing schedules and identify obsolete stock. The tool also computes Days Sales of Inventory (DSI), translating the ratio into a time-based metric. By comparing these figures against specific industry benchmarks, financial analysts and business owners can gauge whether their performance is competitive or lagging.

Formulas

The Inventory Turnover Ratio is derived by dividing the Cost of Goods Sold (COGS) by the Average Inventory.

{

Ratio = COGSAvg. InventoryAvg. Inventory = Beginning + Ending2

To understand the time duration, we calculate Days Sales of Inventory (DSI):

DSI = 365Ratio

Reference Data

Industry Sector	Avg Turnover Ratio	Avg DSI (Days)	Performance Note
Grocery & Perishables	14.0 - 20.0	18 - 26	High turnover required due to spoilage.
Apparel & Retail	4.0 - 6.0	60 - 90	Seasonal trends drive moderate cycles.
Consumer Electronics	8.0 - 10.0	36 - 45	Rapid obsolescence demands speed.
Automotive	5.0 - 7.0	52 - 73	Balanced between assembly and sales.
Industrial Machinery	3.0 - 4.0	91 - 121	Longer lead times and sales cycles.
Construction Materials	4.5 - 6.5	56 - 81	Dependent on housing market cycles.
Furniture	2.5 - 3.5	104 - 146	Bulky items, slower movement.
Pharmaceuticals	3.5 - 4.5	81 - 104	Regulatory expiration dates apply.

Frequently Asked Questions

While high turnover generally indicates strong sales, an excessively high ratio might suggest inadequate inventory levels. This can lead to stockouts, missed sales opportunities, and increased shipping costs due to emergency restocking.

No. COGS (Cost of Goods Sold) strictly includes the direct costs attributable to the production of the goods sold. It includes material and direct labor costs but excludes indirect expenses like distribution, sales force costs, and administrative overhead.

Standard practice is quarterly or annually. However, businesses with perishable goods or high volatility (like fashion or tech) often calculate it monthly to adjust procurement strategies rapidly.

If Beginning Inventory is unavailable, some analysts use the Ending Inventory alone, though this reduces accuracy. Ideally, use the Ending Inventory of the previous period as the current Beginning Inventory.