What is inventory turnover?
The metric shows how quickly capital tied up in inventory is converted. A higher result generally means shorter storage and lower working capital, but excessively high turnover may increase stockout risk.
Inventory days and average inventory
Average inventory is often opening inventory plus closing inventory divided by two. Inventory days can be estimated as 365 divided by turnover. Use a consistent valuation basis for cost of goods and inventory.
Example
If annual cost of goods sold is 6,000,000 and average inventory is 1,000,000, turnover is 6 times per year. This equals approximately 61 inventory days.
Using the result
Compare trends over time and between similar product groups. Combine turnover with service level, shortages, obsolescence and delivery performance before reducing inventory.
Calculate your own scenario
Use the free PurchaseKPI calculator and get the result immediately.
Inventory turnover calculator