Calculator/Business Calculator/ Inventory Turnover Calculator

What Is Inventory Turnover?

Inventory turnover indicates how many times a company sells and replaces its inventory within a given period. It is a key metric for inventory efficiency, cash flow, and working-capital management.

Why Inventory Turnover Matters
  • 1. Measures Inventory Efficiency: A higher turnover means inventory moves quickly and storage time is minimal.
  • 2. Improves Cash Flow: Inventory ties up cash. Faster turnover releases cash sooner.
  • 3. Cuts Inventory-Related Costs: High turnover reduces storage, insurance, and obsolescence costs.
  • 4. Benchmarks Against Competitors: Compare turnover with peers to gauge competitive performance.
  • 5. Refines Sales Strategy: Turnover analysis highlights fast- and slow-moving products for smarter merchandising.
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Inventory Turnover Analysis

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Turnover calculated with sales revenue tends to be higher because margin is not deducted.
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Formulas

Inventory turnover is commonly calculated in two ways:

1. COGS-Based Method

Most accurate and widely used.

Inventory Turnover = COGS ÷ Average Inventory

Where:

  • - COGS: Cost of Goods Sold
  • - Average Inventory = (Opening Inventory + Closing Inventory) ÷ 2
2. Sales-Based Method

Use when COGS is unavailable.

Inventory Turnover = Sales Revenue ÷ Average Inventory

Less accurate because margin is included.

3. Days Inventory Outstanding (DIO)

DIO shows average days inventory is held.

DIO = (Average Inventory ÷ COGS) × Days in Period = 365 ÷ Turnover

If annual turnover is 6, DIO ≈ 61 days (365 ÷ 6).

Examples
Example 1: Retailer

Annual figures for Retailer A:

  • - COGS: ₩500,000,000
  • - Opening Inventory: ₩100,000,000
  • - Closing Inventory: ₩140,000,000
Average Inventory = (₩100,000,000 + ₩140,000,000) ÷ 2 = ₩120,000,000
Turnover = ₩500,000,000 ÷ ₩120,000,000 = 4.17
Retailer A turns inventory about 4.17 times per year.
DIO = 365 ÷ 4.17 ≈ 87.5 days
Inventory is held for roughly 88 days on average.
Example 2: Manufacturer

Quarterly figures for Manufacturer B:

  • - Quarterly COGS: ₩200,000,000
  • - Opening Inventory: ₩80,000,000
  • - Closing Inventory: ₩70,000,000
Average Inventory = (₩80,000,000 + ₩70,000,000) ÷ 2 = ₩75,000,000
Quarterly Turnover = ₩200,000,000 ÷ ₩75,000,000 = 2.67
Annualized Turnover ≈ 2.67 × 4 = 10.68
DIO = 90 ÷ 2.67 ≈ 33.7 days
Inventory is held for roughly 34 days on average.
Industry Average Benchmarks

Inventory turnover varies widely by sector. Figures below are reference ranges; actual values depend on business model, size, and region.

Retail
Grocery & Supermarket Grocery & Supermarket: 12–20
Pharmacy Pharmacy: 7–12
Clothing Retail Clothing: 4–6
Electronics Retail Electronics: 5–7
Furniture Retail Furniture: 3–5
Jewelry Retail Jewelry: 1–3
Discount Department Store Discount Department Store: 8–10
Manufacturing
Automobile & Parts Automotive & Parts: 6–8
Food Processing Food Processing: 8–12
Pharmaceuticals Pharmaceuticals: 3–5
Electronics Manufacturing Electronics: 5–7
Machinery Equipment Machinery: 3–5
Apparel Manufacturing Apparel Manufacturing: 4–6
Chemical Products Chemical Products: 6–8
Wholesale
Food Wholesale Food Wholesale: 10–14
Pharma Wholesale Pharma Wholesale: 6–9
Electronics Wholesale Electronics Wholesale: 6–8
Industrial Supplies Wholesale Industrial Supplies: 4–6
Building Materials Wholesale Building Materials: 5–7

General interpretation:

  • High (10+): Very efficient or risk of stockouts
  • Medium (5–10): Healthy management
  • Low (<5): Needs improvement or reflects high-value goods
Analysis & Improvement
How to Analyze Turnover
1. Time-Series Analysis

- Track at least 3–5 years to spot trends - Identify seasonal patterns

2. Competitor Comparison

- Compare turnover with peers - Benchmark industry leaders

3. Product-Level Analysis

- Analyze turnover by product category - Identify fast- and slow-moving items

4. Link with Related Metrics

- Correlate turnover with sales growth - Compare with asset turnover, receivables turnover, etc.

Strategies to Improve Turnover
1. Enhance Demand Forecasting

- Maintain optimal stock levels with accurate forecasts - Use data analytics and AI models

2. Implement Just-In-Time (JIT)

- Order only what is needed, when needed - Build strong supplier partnerships

3. Apply ABC Analysis

- Classify items as A (high-value), B (medium), C (low-value) - Tailor stock policies by class

4. Use Inventory Software

- Real-time tracking and automation - Auto-replenishment features

5. Optimize Sales Strategies

- Promotions for slow movers - Streamline low-turn products

Related Metrics

Combine inventory turnover with other metrics for deeper insight.

1. Cash Conversion Cycle (CCC)
CCC = DIO + DSO – DPO

Lower DIO shortens the CCC, improving liquidity.

2. Total Asset Turnover
Total Asset Turnover = Sales ÷ Average Total Assets

Inventory is a key asset; better turnover usually raises overall asset efficiency.

3. Gross Profit Margin
Gross Profit Margin = (Sales – COGS) ÷ Sales × 100

Turnover and margin often trade off: higher prices raise margin but slow turnover, and vice versa.

FAQ

A: Not necessarily. Excessively high turnover may signal frequent stockouts and lost sales. Optimal turnover depends on industry, business model, and supply-chain dynamics.

A: Consider these actions: - Improve demand forecasting - Discount excess or slow inventory - Renegotiate supplier lead times - Review product lines and discontinue low demand items - Order smaller, more frequent batches

A: Inventory turnover measures efficiency of inventory alone, while total asset turnover covers all assets. Improving inventory turnover generally boosts total asset turnover.

A: COGS is more accurate because sales include margin. Use sales only when COGS is unavailable, and keep method consistent for comparisons.