Calculate how efficiently you sell through inventory and optimize cash flow management
Calculate how efficiently you sell through inventory and optimize cash flow management
Generated: 1/13/2026, 3:17:02 AM | AskSMB.io
Total cost of products sold during period
Inventory value at start of period
Inventory value at end of period
Number of days in the period (typically 365 for annual)
Average inventory cannot be zero
Average Inventory
$0
Average inventory held during period
Inventory Turnover Ratio
0.00
How many times inventory was sold and replaced
Days Inventory on Hand (DOH)
0.00 days
Average number of days inventory is held
Performance Indicator
No inventory
Based on industry benchmarks
Inventory turnover is a financial metric that measures how many times a company sells and replaces its inventory during a specific period (usually a year). It's calculated by dividing the Cost of Goods Sold (COGS) by the average inventory value. A higher ratio indicates inventory is moving quickly, while a lower ratio suggests inventory is sitting on shelves too long, tying up cash and increasing storage costs.
Inventory turnover is critical for several business reasons:
Understanding what your turnover ratio means:
Typical inventory turnover ratios by industry:
Strategies to optimize your inventory turnover ratio:
Scenario: A retail business wants to evaluate inventory efficiency for the year.
COGS: $240,000
Beginning inventory: $40,000
Ending inventory: $60,000
Results:
• Average inventory: $50,000 [($40,000 + $60,000) ÷ 2]
• Inventory turnover: 4.8 times per year ($240,000 ÷ $50,000)
• Days inventory on hand: ~76 days (365 ÷ 4.8)
• Performance: 🟡 Moderate - Room for optimization
This business turns its inventory about once every 76 days. With a ratio of 4.8, there's potential to improve efficiency by reducing slow-moving inventory or accelerating sales through better marketing.