Inventory Turnover and Days of Inventory: How Fast Does Your Stock Really Sell?
October 21, 2026
Inventory ties up cash. Every dollar sitting on a shelf is a dollar that cannot pay suppliers, fund marketing, or earn interest. Inventory turnover measures how many times a business sells and replaces its stock during a period. It is calculated as cost of goods sold (COGS) divided by average inventory. A shop with annual COGS of $600,000 and an average inventory of $100,000 turns its stock 6 times a year.
The related measure, days sales of inventory (DSI), converts turnover into time: 365 ÷ 6 = 61 days. That means the typical item sits for about two months before it sells.
Skip the math and get your answer instantly:
Open the Margin & Markup Calculator →The Formulas
Inventory turnover = COGS ÷ average inventory, where average inventory is typically the beginning plus ending inventory divided by 2 (or a monthly average for seasonal businesses). DSI = 365 ÷ turnover, or average inventory ÷ COGS × 365. Use COGS rather than sales because inventory is carried at cost, and sales include markup, which would overstate turnover.
For a business with $750,000 of sales and a gross margin of 20%, COGS is $600,000. With inventory at $100,000 on average, the turnover is 6.0 and DSI is 61 days.
| Average inventory | Annual COGS | Turnover | Days of inventory |
|---|---|---|---|
| $50,000 | $600,000 | 12.0 | 30 days |
| $100,000 | $600,000 | 6.0 | 61 days |
| $150,000 | $600,000 | 4.0 | 91 days |
| $200,000 | $600,000 | 3.0 | 122 days |
What Is a Good Turnover?
It depends entirely on the industry. Grocery stores often turn inventory 12 to 20 times a year or more because food is perishable. Apparel retailers might turn 3 to 5 times, furniture 2 to 4 times, and jewelry stores 1 to 2 times. Auto dealerships turn vehicles roughly every 50 to 70 days. Compare your results to peers and to your own history.
A high turnover suggests efficient inventory management and strong sales, but if it is too high you may be understocking and losing sales to stockouts. A low turnover suggests overstocking, weak demand, obsolete items, or poor purchasing. Slow stock risks markdowns, spoilage, and obsolescence.
The Cash Impact
Reducing DSI frees cash. Cutting average inventory from $100,000 to $75,000 while keeping the same sales raises turnover to 8 and releases $25,000 in cash, which could pay down a loan costing 10% and save $2,500 a year in interest, plus reduce storage, insurance, and shrinkage costs. Carrying costs for inventory, including capital, storage, insurance, taxes, and obsolescence, are often estimated at 20% to 30% of inventory value per year.
At 25%, carrying $100,000 of stock costs about $25,000 a year, a cost that is easy to overlook.
How to Improve Turnover
Use sales data to identify slow movers and fast movers (ABC analysis), where A items generate most revenue and receive the tightest control. Order smaller quantities more often if suppliers allow it. Negotiate shorter lead times to reduce safety stock. Run promotions to clear aging stock before it loses value. Set reorder points based on demand and lead time: reorder point = daily demand × lead time + safety stock. Improve forecasting by reviewing seasonality. Avoid bulk-buy discounts that cost more in carrying costs than they save.
Limits of the Ratio
Averages hide seasonality, so a business with a large holiday buildup may look slow by year-end inventory. Different accounting methods (FIFO, LIFO, weighted average) change the inventory value in inflationary times. Look at turnover by product category, and combine it with gross margin: a slower-turning, high-margin item can be more profitable than a fast-turning, low-margin one. Gross margin return on investment (GMROI) multiplies the two: gross margin ÷ average inventory cost.
Frequently Asked Questions
How do I calculate inventory turnover?
Divide cost of goods sold by average inventory for the period.
What does days sales of inventory mean?
The average number of days it takes to sell inventory, calculated as 365 divided by turnover.
Is higher inventory turnover always better?
Not always. Very high turnover can mean stockouts and lost sales.
Why use COGS instead of sales?
Because inventory is valued at cost, so COGS makes the numerator comparable.
How can I free up cash from inventory?
Reduce slow-moving stock, order more frequently in smaller quantities, and improve forecasting.