See how many times you sell through your average inventory in a period, and how many days stock sits.
Average inventory = (beginning + ending) ÷ 2.
Turnover = COGS ÷ average inventory.
Days = days in period ÷ turnover.
A hardware store has $240,000 of cost of goods sold in a year, with inventory of $30,000 at the start and $50,000 at the end. Average inventory is $40,000, turnover is 6.0, and stock sits about 61 days.
Turnover shows whether stock moves at a healthy pace. Low turnover ties up cash and risks waste; very high turnover can mean stock-outs.
Compare with your own history and similar businesses; norms vary by product.
An auto parts store has $96,000 in cost of goods sold for the quarter, $64,000 of inventory at the start and $56,000 at the end. Average inventory is $60,000, turnover for the quarter is 1.6 times, and with 91 days in the period stock sits about 56.9 days.
Turnover is cost of goods sold over average inventory, and days of inventory is the period length divided by turnover, so both depend on entering matching periods. An average of two counts is rough, and a store that stocks up before a season can look faster or slower depending on when the counts fall. Inventory valued at retail instead of cost makes turnover look slower than it really is.
A fast turn is not always a good one if margins are thin. GMROI, gross margin return on inventory investment, divides gross margin by average inventory at cost. In the hardware store example, if sales were $360,000, gross margin would be $120,000. With $40,000 of average inventory, GMROI is 3.0: each dollar tied up in stock returned three dollars of gross margin over the year. Compare categories on both measures before cutting a slow but high-margin line.
| Category | Turnover | Days on hand |
|---|---|---|
| Fasteners | 9.1 | 40 |
| Paint | 5.2 | 70 |
| Seasonal garden | 2.4 | 152 |
| Power tools | 3.0 | 122 |
Days on hand is 365 divided by turnover. A count that shows garden stock sitting five months points to smaller, later orders next season.
Inventory is valued at cost, so cost matches.
It depends on the products.
Monthly averages are more accurate when stock swings.
Order smaller, faster and cut slow items.
Enter the quarter’s cost of goods sold and 91 days. Days of inventory can be compared directly with a yearly result, but quarterly turnover will be about a quarter of the yearly turnover number.
Yes. Very fast turnover can mean stock is too thin and shelves run empty, which loses sales. Check stockouts alongside turnover before cutting inventory further.
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