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Inventory turnover: formula in times and days, example

Inventory turnover shows how many times a company “turns over” its inventory during a period. It is measured based on COGS and helps balance liquidity, service level, and the risk of slow-moving items.

What the Metric Measures

How quickly inventory converts into sales/output, and the number of days of demand coverage. Analyze RM/WIP/FG and ABC/XYZ groups separately.

Calculation

  • Inventory Turnover = COGS / Average inventory (at cost)
  • DIO = Average inventory / COGS × Days in period
  • Days of Supply = Current inventory / Average daily demand
  • Calculate separately for RM/WIP/FG and A/B/C categories
  • Derived metrics: GMROI = Gross margin / Average inventory

Align the valuation method (FIFO/LIFO/Weighted Average), currency, VAT, seasonality, and accounting for markdowns/returns.

Calculation example

Annual cost of sales is 14,400,000 and average inventory is 2,400,000. Turnover = 14,400,000 / 2,400,000 = 6 times a year, or 365 / 6 ≈ 61 days. Speeding up to 8 turns would free 600,000 tied up in inventory.

Data Sources

ERP/1C, WMS, MRP/APS, CRM/OMS, accounting module, demand/forecast analytics, SKU reference data.

Interpretation

  • Turnover↑ / DIO↓: capital is freed up and storage costs fall, but there is a risk of shortages
  • Turnover↓ / DIO↑: excess stock and risk of obsolescence; check batches/lead time/forecast
  • Control the balance through Fill Rate/OTIF and Stockout Rate

Useful Breakdowns

  • RM / WIP / FG; ABC / XYZ
  • Categories / SKUs; warehouses / regions / channels
  • Suppliers / lead time; season / trend
  • With promo vs without promo; fast- vs slow-moving

Dashboard Visualizations

  • Turnover and DIO trends by group
  • Heatmap of DIO by warehouse/SKU and stock aging
  • Pareto of inventory by value and age
  • GMROI comparison and excess/shortage alerts

How to Set Targets

Set DIO/Turnover targets for A/B/C and RM/WIP/FG; align safety stock, ROP, and lot-sizing policy (EOQ/Min-Max), rules for markdowns/clearing SLOB, and the link to the target OTIF.

Common Mistakes

  • Using revenue instead of COGS
  • Calculating from ending inventory rather than average inventory
  • Mixing currencies/VAT, ignoring seasonality and promotions
  • No ABC/XYZ segmentation or RM/WIP/FG split
  • Unaccounted dead stock and incorrect lead time

Discussion Questions

  • What effect would −10 days of DIO have on cash and service?
  • Which SKUs need markdowns/liquidation, and which need higher stock levels?
  • Do safety stock and ROP match the actual lead time?
  • What is the GMROI for key categories, and how can it be improved?

Questions and answers

How do you calculate inventory turnover?

Turnover (times) = cost of sales for the period / average inventory for the same period. Turnover in days = days in the period / turnover in times.

What inventory turnover is normal?

It depends on the industry: groceries turn in days, building materials or spare parts in months. Compare with past periods and across product groups.

How do you speed up inventory turnover?

Clear dead stock, buy to a demand forecast, cut safety stock on slow movers and agree on smaller, more frequent deliveries.