How do you calculate inventory turnover ratio?

Inventory Turnover Ratio = Cost of Goods Sold ÷ Average Inventory, where average inventory = (beginning inventory + ending inventory) ÷ 2. Example: $500,000 COGS with $125,000 average inventory gives a turnover ratio of 4.0 — you sell and replace your stock four times a year.

What is Days Sales of Inventory (DSI)?

DSI = (Average Inventory ÷ COGS) × 365 — the average number of days it takes to sell your inventory. It's the turnover ratio expressed in days: a turnover of 4.0 equals a DSI of about 91 days. Under 60 days is excellent for most businesses; over 90 usually needs attention.

Should I use COGS or sales to calculate turnover?

Use COGS. Both inventory and COGS are measured at cost, so the ratio is apples-to-apples. Dividing sales (at retail price) by inventory (at cost) inflates the ratio by your markup and overstates efficiency.

Inventory Turnover Calculator

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Cost of goods sold — annual ($)

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Industry (for benchmark)

Beginning inventory ($)

Ending inventory ($)

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The Inventory Turnover Formula

Turnover Ratio = COGS ÷ Average Inventory

Average Inventory = (Beginning + Ending) ÷ 2

The ratio tells you how many times per year you sell and replace your stock. Example: $500,000 annual COGS with $100,000 beginning and $150,000 ending inventory gives average inventory of $125,000 and a turnover of 4.0 — four full inventory cycles a year, or one every ~91 days.

Industry Benchmarks

Industry	Typical turns/year	Typical DSI
Food & perishables	6–12	30–60 days
Retail (general)	4–6	60–90 days
Manufacturing	3–5	73–120 days
Luxury goods	2–4	90–180 days

Reading Your Number

Below your industry range

Cash is sitting on shelves: excess stock, rising carrying costs, and growing obsolescence risk. Businesses below benchmark typically waste 15–25% of working capital on excess inventory. Start with demand forecasting and markdown timing.

Far above your industry range

Efficient — or under-stocked. Very high turnover often comes with stockouts and lost sales (costing an average of 4% of revenue). Check your service levels and safety stock before celebrating.

For optimization strategies — forecasting, just-in-time ordering, supplier management — see our complete guide to calculating and optimizing inventory turnover.

Frequently Asked Questions

What is a good inventory turnover ratio?

4–6 is healthy for most businesses, but industry matters more than any universal number: food runs 6–12, manufacturing 3–5, luxury 2–4. Compare against your own trend over time as well as your peers.

Should I use COGS or revenue?

COGS. Inventory is carried at cost, so dividing by COGS keeps both sides of the ratio at cost. Using revenue inflates the ratio by your markup and makes you look more efficient than you are.

How often should I calculate it?

Quarterly for monitoring, annually for strategic review — and immediately after big changes like a new product line or supplier. Consistent method choice matters: your valuation method changes ending inventory, which changes this ratio.

What's the relationship between turnover and DSI?

They're the same insight in different units: DSI = 365 ÷ turnover ratio. Turnover of 4.0 means DSI of ~91 days. Use whichever your team finds more intuitive.

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Optimization Guide

Strategies to improve your ratio 20–40%.

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