Inventory turnover is cost of goods sold divided by average inventory value at cost. It tells you how many times your stock cycled in the period. Low turnover means cash is sitting still; very high turnover often means you are running thin and losing sales to stockouts. Both use cost figures, not retail prices.
Work out your inventory turnover
Nothing is sent anywhere. The calculation happens in this page.
Inventory turnover = cost of goods sold ÷ average inventory value at cost
Reading the result
The single most common error is mixing cost and retail. Both inputs must be at cost. Using retail for one and cost for the other inflates the result by your entire margin and makes a struggling store look efficient.
The result is only meaningful against your own history or a comparable store. Turnover varies enormously by category: perishables turn dozens of times a year and furniture might turn twice, and neither is a verdict.
Rising turnover with steady sales means you are holding less stock for the same revenue, which is usually good. Rising turnover with falling sales means you are shrinking, which is not.
When the number looks wrong
Turnover is the calculation most often read too confidently.
- A suspiciously high number. Almost always retail in the numerator and cost in the denominator. Check both are at cost.
- A number that contradicts how you feel about the business. Average inventory value matters more than people expect. Averaging start and end of period is rough, and it distorts badly for a seasonal store.
- A high figure alongside frequent stockouts. This is turnover telling you something real: you are cycling stock fast because you keep running out, which is efficiency achieved by losing sales.
Where the inputs come from
- Cost of goods sold: what the goods you sold cost you, for the period. Not revenue.
- Average inventory value: at cost. The simple version is opening plus closing divided by two; a monthly average is meaningfully better if you have seasonal swings.
The derivation and a worked example are on the inventory turnover definition.
Common questions
What is a good inventory turnover?
It depends so heavily on category that a cross-industry figure is close to meaningless. Compare against your own previous periods, which is the comparison that actually tells you something.
Should I use retail or cost values?
Cost, for both inputs. Mixing them is the most common mistake and it inflates the result by your whole margin.
Is high turnover always good?
No. Very high turnover alongside regular stockouts means you are cycling stock quickly because you keep running out, and the sales you did not make do not appear anywhere in this number.
How do I get average inventory value?
Opening plus closing divided by two is the usual shortcut. If your stock swings seasonally, average the monthly values instead, because the shortcut can be badly wrong for a store with a peak.