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

See it move

Loading infographic...

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.

Where it fits

SubjectFinancial AccountingCoreTopicWorking Capital & Trade AccountsCoreTopicFinancial Statement Analysis & RatiosCore

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