An inventory turnover calculator asks how many times cost of goods sold replaces the stock you carry.
An SEC computation of ratios exhibit writes the ratio as total cost of sales divided by average inventory. Average inventory is the beginning balance plus the ending balance, divided by two. The SEC’s income-statement guide places cost of goods sold under revenue. That cost line is the numerator. Selling price stays out.
The inventory turnover calculator uses this:
Average inventory = (beginning + ending) ÷ 2
Turnover = cost of goods sold ÷ average inventory
Days on hand = days in the period ÷ turnover
The SBA glossary treats inventory as a current asset, something that could convert to cash inside a year. Days on hand is how this ratio reads that wait. A unit count divided by daily unit sales is a different page, the inventory days of supply calculator.
These examples use the formula above. They are a book-value ratio, not a buying schedule, and they are not business advice.
Fig 1
From two balances to days on hand
Cost of goods sold is the numerator
Average the beginning and ending inventory. Divide cost of goods sold by that average. Divide the day count by the turns.
What belongs in the ratio
Keep inventory and cost of goods sold on the same cost basis. A retail price tag on the shelf is a larger number than cost, so it inflates the average and cuts the turn count. Example 10 runs that mistake on the default cost of goods sold.
The day count is the period you type. A year on this page is 365 days. A quarter in Example 6 is 90 days. The turns belong to that period. They are not an annualized rate unless the inputs already cover a year.
Example 1: the calculator defaults
Inputs:
- beginning inventory: $80,000
- ending inventory: $100,000
- cost of goods sold: $360,000
- days in the period: 365
Average inventory: (80,000 + 100,000) ÷ 2 = $90,000.00
Turnover: 360,000 ÷ 90,000 = 4×
Days on hand: 365 ÷ 4 = 91.25, which the page rounds to 91.3 days
Calculator result
Inventory turnover
- Beginning inventory
- $80,000.00
- Ending inventory
- $100,000.00
- Cost of goods sold
- $360,000.00
- Days in the period
- 365 days
4×
inventory turns in the period
- Average inventory
- $90,000.00
- Days of inventory on hand
- 91.3 days
- Cost of goods sold
- $360,000.00
Four turns means this cost of goods sold replaced a $90,000 average stock four times in the year. The shelf wait on that average is 91.3 days.
Fig 2 · 1/2
91.3 days inside a 365-day year
Defaults. Average inventory $90,000. Cost of goods sold $360,000.
Days on hand
91.3 days
Days in the year
Year length next
365 days
Days on hand are 91.3.
The period you typed is 365 days.
Example 2: stock that turns 16 times
Inputs: beginning $25,000, ending $35,000, cost of goods sold $480,000, days 365.
Average: (25,000 + 35,000) ÷ 2 = $30,000.00
Turnover: 480,000 ÷ 30,000 = 16×
Days on hand: 365 ÷ 16 = 22.8125, shown as 22.8 days
Calculator result
Inventory turnover
- Beginning inventory
- $25,000.00
- Ending inventory
- $35,000.00
- Cost of goods sold
- $480,000.00
- Days in the period
- 365 days
16×
inventory turns in the period
- Average inventory
- $30,000.00
- Days of inventory on hand
- 22.8 days
- Cost of goods sold
- $480,000.00
The cost of goods sold is larger than Example 1, and the average stock is one third of $90,000. 30,000 ÷ 90,000 = 1/3. Turns rise from 4 to 16. Days on hand fall from 91.3 to 22.8.
Example 3: a slow furniture stock
Inputs: beginning $180,000, ending $220,000, cost of goods sold $240,000, days 365.
Average: (180,000 + 220,000) ÷ 2 = $200,000.00
Turnover: 240,000 ÷ 200,000 = 1.2×
Days on hand: 365 ÷ 1.2 = 304.166, shown as 304.2 days
Calculator result
Inventory turnover
- Beginning inventory
- $180,000.00
- Ending inventory
- $220,000.00
- Cost of goods sold
- $240,000.00
- Days in the period
- 365 days
1.2×
inventory turns in the period
- Average inventory
- $200,000.00
- Days of inventory on hand
- 304.2 days
- Cost of goods sold
- $240,000.00
Cost of goods sold did not replace the average stock even twice. 304.2 days is most of the 365-day period. The SBA line about converting inventory to cash inside a year is a definition of a current asset. This example sits close to that year: 365 − 304.2 = 60.8 days of the period left after the days-on-hand figure.
Example 4: what if ending inventory doubles
Hold Example 1. Change ending inventory from $100,000 to $200,000. Beginning inventory, cost of goods sold, and the 365 days stay put.
Average: (80,000 + 200,000) ÷ 2 = $140,000.00
Turnover: 360,000 ÷ 140,000 = 2.5714, shown as 2.57×
Days on hand: 365 ÷ (360,000 ÷ 140,000) = 141.944, shown as 141.9 days
The extra $100,000 at the end raised the average by 140,000 − 90,000 = $50,000.00. Turns fell from 4 to 2.57. Days on hand rose from 91.3 to 141.9. Same sales at cost, more stock sitting there at the close.
Example 5: the mistake of using sales instead of cost
Hold the default balances: beginning $80,000, ending $100,000, average $90,000.00. Suppose the sales line is $540,000 and someone types that as cost of goods sold.
Mistaken turnover: 540,000 ÷ 90,000 = 6×
Mistaken days: 365 ÷ 6 = 60.833, shown as 60.8 days
The formula on the real cost line is still Example 1: 4× and 91.3 days. The sales figure is higher by 540,000 − 360,000 = $180,000.00, which is the markup sitting in revenue. That markup does not belong in this numerator. The markup and margin post is the pricing question. Turnover uses cost.
The gap is 6 − 4 = 2 turns, and 91.3 − 60.8 = 30.5 days.
Example 6: a 90-day quarter
Inputs: beginning $40,000, ending $50,000, cost of goods sold $90,000, days 90.
Average: (40,000 + 50,000) ÷ 2 = $45,000.00
Turnover: 90,000 ÷ 45,000 = 2×
Days on hand: 90 ÷ 2 = 45 days
Two turns in a 90-day period means the average stock sat 45 days inside that quarter. Multiplying 2 × 4 to call it “8 turns a year” assumes the next three quarters look like this one. The calculator does not do that. Type 365 and the year’s own cost and balances when you want a year.
Example 7: stock that shrinks
Inputs: beginning $120,000, ending $40,000, cost of goods sold $200,000, days 365.
Average: (120,000 + 40,000) ÷ 2 = $80,000.00
Turnover: 200,000 ÷ 80,000 = 2.5×
Days on hand: 365 ÷ 2.5 = 146 days
The ending balance is one third of the start. 40,000 ÷ 120,000 = 1/3. The average still uses both, so the ratio does not pretend the year was run on the $40,000 close. If you used only the ending balance, 200,000 ÷ 40,000 = 5×, and 365 ÷ 5 = 73 days. That is a different ratio. The SEC line uses the average.
Example 8: a small shop
Inputs: beginning $4,000, ending $6,000, cost of goods sold $36,000, days 365.
Average: (4,000 + 6,000) ÷ 2 = $5,000.00
Turnover: 36,000 ÷ 5,000 = 7.2×
Days on hand: 365 ÷ 7.2 = 50.694, shown as 50.7 days
The dollars are small next to Example 1. The shape is the same. Cost of goods sold is 36,000 ÷ 5,000 = 7.2 times the average stock, so the shelf wait is about 51 days.
Example 9: beginning equals ending
Inputs: beginning $50,000, ending $50,000, cost of goods sold $150,000, days 365.
Average: (50,000 + 50,000) ÷ 2 = $50,000.00
Turnover: 150,000 ÷ 50,000 = 3×
Days on hand: 365 ÷ 3 = 121.666, shown as 121.7 days
When the two balances match, the average is that balance. You still type both. Leaving one at zero would cut the average in half and double the turns.
Example 10: the mistake of typing retail value as inventory
Hold Example 1’s cost of goods sold at $360,000 and the period at 365 days. Type both inventory balances at a retail value of $150,000 instead of the cost balances.
Average: (150,000 + 150,000) ÷ 2 = $150,000.00
Turnover: 360,000 ÷ 150,000 = 2.4×
Days on hand: 365 ÷ 2.4 = 152.083, shown as 152.1 days
Example 1, on cost, was 4× and 91.3 days. The retail balances are 150,000 ÷ 90,000 = 1.67 times the cost average, so the turns fall by that same factor: 4 ÷ 2.4 = 1.67. Switch the inventory lines back to cost. The SEC numerator is cost of sales.
Fig 3 · 1/5
Turns in the period
One series. Each column is that example's turnover.
Turns
- Turns
| Category | Turns |
|---|---|
| Default | 4 |
| Fast stock | 16 |
| Furniture | 1.2 |
| Small shop | 7.2 |
| Flat stock | 3 |
The default year turns 4 times. The fast stock turns 16.
Furniture turns 1.2 times. The flat $50,000 stock turns 3.
Fig 4 · 1/3
Days of inventory on hand
Default year, fast stock, and the sales-as-cost mistake on the same $90,000 average.
Days on hand
Default
91.3
Fast stock
22.8
Sales typed as cost
60.8
The default year sits 91.3 days.
Typing $540,000 of sales as cost cuts the same stock to 60.8 days.
Days on hand and the cash cycle
Days on hand from this ratio become the inventory leg of the cash conversion cycle. The cycle post adds receivable days and subtracts payable days. Inventory that turns slowly lengthens that cycle even when customers pay on time.
Working capital still counts the inventory dollars as a current asset. The working capital post shows a case where the current ratio looks the same and the quick ratio does not, because the quick ratio removes inventory.
The ten results side by side
| Example | Beginning | Ending | Average | COGS | Days | Turns | Days on hand |
|---|---|---|---|---|---|---|---|
| 1. Defaults | $80,000 | $100,000 | $90,000 | $360,000 | 365 | 4× | 91.3 |
| 2. Fast stock | $25,000 | $35,000 | $30,000 | $480,000 | 365 | 16× | 22.8 |
| 3. Furniture | $180,000 | $220,000 | $200,000 | $240,000 | 365 | 1.2× | 304.2 |
| 4. Ending doubles | $80,000 | $200,000 | $140,000 | $360,000 | 365 | 2.57× | 141.9 |
| 5. Sales as cost | $80,000 | $100,000 | $90,000 | $540,000 typed | 365 | 6× | 60.8 |
| 6. Quarter | $40,000 | $50,000 | $45,000 | $90,000 | 90 | 2× | 45 |
| 7. Shrinking stock | $120,000 | $40,000 | $80,000 | $200,000 | 365 | 2.5× | 146 |
| 8. Small shop | $4,000 | $6,000 | $5,000 | $36,000 | 365 | 7.2× | 50.7 |
| 9. Flat balances | $50,000 | $50,000 | $50,000 | $150,000 | 365 | 3× | 121.7 |
| 10. Retail balances | $150,000 | $150,000 | $150,000 | $360,000 | 365 | 2.4× | 152.1 |
Examples 5 and 10 are the two slips. Example 5 puts sales in the numerator. Example 10 puts retail value in the inventory lines. Example 1 is the cost-basis year those slips should be compared with.
A seasonal peak that is not the beginning or the ending balance will not show up in a two-point average. Shorten the day count to the season, and type that season’s cost and its own two balances, the way Example 6 does for 90 days.