Inventory turnover tells you how many times you completely sold through your entire inventory in a year. A grocery store might turn inventory 25 times; a furniture retailer might turn it 4 times. Both are healthy for their respective industries.
Inventory Turnover = COGS / Average Inventory
With $1.2M in annual COGS and $200k average inventory: 6.0× turnover. That means you sell and replace your entire inventory every 61 days.
Why inventory turnover matters
It's a cash efficiency metric: Every dollar in inventory is a dollar not available for payroll, marketing, or growth. A retailer carrying $500k in inventory at 3× turnover has 4 months of sales tied up in stock. At 6×, it's 2 months. The difference is $250k in freed-up working capital.
It exposes operational issues: Declining turnover often signals: - Demand forecasting errors (buying too much) - Supplier minimum order quantities forcing overbuy - Poor category decisions (stocking items customers don't want) - Seasonality not accounted for in ordering - Pricing too high relative to competition
Calculating average inventory correctly
Average Inventory = (Beginning Inventory + Ending Inventory) / 2
This basic average smooths out point-in-time fluctuations. For seasonal businesses, consider calculating monthly averages across 12 months for a more accurate picture.
Using year-end inventory alone (without averaging) can distort the ratio for seasonal businesses — a retailer with low post-holiday inventory will show artificially high turnover.
Industry benchmarks
| Industry | Typical turnover | DSI |
|---|---|---|
| Grocery | 20–30× | 12–18 days |
| Fast fashion | 6–12× | 30–60 days |
| Electronics | 6–10× | 37–61 days |
| Automotive | 4–8× | 46–91 days |
| Furniture | 3–6× | 61–122 days |
| Industrial B2B | 2–5× | 73–183 days |
Compare your ratio to your industry, not to a generic "good turnover" number.
Days Sales of Inventory (DSI)
DSI = 365 / Inventory Turnover
DSI is the inverse of turnover — it tells you how many days of inventory you're carrying. Lower is usually better: it means you're selling product quickly and not tying up excessive cash in stock.
Calculate your inventory efficiency at the Inventory Turnover Calculator.