Inventory Turnover: What It Is and How to Improve It
Inventory turnover shows how fast you sell and replace stock. Here's how to calculate it, what 'days inventory' means, and how to free up trapped cash.
What inventory turnover measures
Inventory turnover is the number of times you sell and replace your average stock over a period. A higher ratio means stock moves quickly and less cash is tied up on the shelf. The free Inventory Turnover Calculator gives both the ratio and days on hand.
The formula
Inventory turnover = cost of goods sold ÷ average inventory. A turnover of 6 means you cleared your average stock six times. Days inventory outstanding = 365 ÷ turnover, so a turnover of 6 equals about 61 days of stock on hand.
High or low — what's right?
Higher turnover generally means efficient stock and healthy demand. But push it too high and you risk stockouts and lost sales. Too low signals overstocking, obsolescence, and cash trapped in goods. The right level depends on your industry and margins.
How to improve it
- Identify slow movers and clear them with the Discount Calculator.
- Set smart reorder points with the Reorder Point Calculator.
- Avoid bulk-buying beyond real demand.
Use the free Inventory Turnover Calculator | Reorder Point Calculator