---
title: "Inventory turnover"
description: "What inventory turnover is, how to calculate the turnover ratio and days inventory outstanding, what a high or low ratio means and a worked example for a retailer."
canonical: https://ledgeriano.com/glossary/inventory-turnover
language: en
publisher: "Ledgeriano"
updated: 2026-11-06
---

# Inventory turnover

> What inventory turnover is, how to calculate the turnover ratio and days inventory outstanding, what a high or low ratio means and a worked example for a retailer.

Inventory turnover is the cost of goods sold for a period divided by average inventory. It shows how many times a business sells and replaces its stock in that period. Dividing 365 by the turnover gives days inventory outstanding (DIO), the average number of days goods sit in the warehouse before they are sold.

A higher turnover usually means leaner stock, less cash tied up and less risk of obsolescence; a very high turnover can also mean frequent stockouts. A falling turnover is an early warning of slow-moving or obsolete items that may need a write-down to [net realisable value](https://ledgeriano.com/glossary/net-realisable-value).

Use cost of goods sold rather than sales so both sides are measured at cost, and average the opening and closing balances, or monthly balances for seasonal businesses. Inventory days feed directly into the [cash conversion cycle](https://ledgeriano.com/glossary/cash-conversion-cycle). Ledgeriano's inventory module reports stock on hand, ageing and a reorder list per warehouse.

```
Inventory turnover = Cost of goods sold / Average inventory
Average inventory = (Opening inventory + Closing inventory) / 2
Days inventory outstanding = 365 / Inventory turnover
```

## Example: a hardware retailer

A retailer's cost of goods sold for the year is 480,000. Inventory was 70,000 at the start and 90,000 at the end, so average inventory is 80,000. Turnover is 480,000 / 80,000 = 6 times a year, and goods stay in stock about 365 / 6 = 61 days.

### What is a good inventory turnover ratio?

It depends on the industry: groceries may turn more than 12 times a year, furniture or machinery parts only 2 to 4 times. Compare with your own history and similar businesses.

### Why use cost of goods sold instead of sales?

Inventory is carried at cost, so dividing sales (which include profit) by inventory would overstate the turnover.

Guide: https://ledgeriano.com/guides/inventory-cost-accounting