Inventory turnover

Inventory turnover measures how many times a firm sells and replaces its stock in a period, calculated as cost of goods sold divided by average inventory. A higher figure indicates stock moves quickly and less cash is tied up in goods.

ByHoang TruongUpdated June 30, 2026

FrameworkRatio analysis

What it is

See it move

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Annual cost of goods sold of €1,200,000 divided by average inventory of €160,000 — the mean of €140,000 opening and €180,000 closing stock — gives an inventory turnover of 7.5 times. Converting to days, 365 ÷ 7.5 is about 49 days, the average time stock is held before it sells.

The formula

LaTeX

\text{Inventory Turnover} = \frac{\text{COGS}}{\text{Average Inventory}}

Variables

$C O GS$: Cost of goods sold for the period (€)
$A v er a g e I n v e n t or y$: Mean of opening and closing inventory for the period (€)

LaTeX

\text{DIO} = \frac{365}{\text{Inventory Turnover}}

Variables

$D I O$: Days inventory outstanding — average number of days stock is held before being sold (days)

Converts the turnover ratio to average days stock is held