Calculate the inventory turnover ratio and estimate how long inventory stays on hand.
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If annual COGS is $600,000 and average inventory is $100,000, turnover is 6 times per year.
Calculate inventory turnover and approximate days inventory on hand from cost of goods sold and average inventory. The result is intended for quick estimates, checking arithmetic and comparing scenarios. When a result affects a contract, tax filing, medical decision, building-code requirement or other high-stakes situation, verify the result with the appropriate professional or authoritative source.
$600,000 cost of goods sold divided by $100,000 average inventory gives six turnovers a year, about 60.8 inventory days.
Turnover compares annualized costs with the corresponding period's average inventory.
Using closing inventory instead of an average can distort the ratio for seasonal businesses.
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Calculate inventory turnover and approximate days inventory on hand from cost of goods sold and average inventory.
Inventory turnover = cost of goods sold ÷ average inventory. Days inventory ≈ 365 ÷ turnover.
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A higher turnover means inventory is sold and replaced more frequently. The “right” ratio depends heavily on industry, product type and stockout risk.
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