Inventory Turnover and Days of Sales in Inventory Calculator

Written by:
PK

Here is an inventory turnover ratio calculator which also estimates the number of days of sales that are held in inventory. Enter the Cost of Goods Sold in a given period, and the Inventory held in Current Assets and the beginning and end of the period to compute the inventory turnover.

Inventory Turnover Ratio Calculator

What is inventory turnover?

Inventory turnover or the inventory turnover ratio is a number denoting how quickly a company sold and replenished its inventory in a given period. It also allows you to get an estimate of the number of days of sales the current inventory supports if the company doesn't replenish its inventory.

There's no good or bad number in a vacuum for inventory turnover (although more inventory turnover means a company could operate with less working capital if appropriate). Compare the number you compute with other peer companies to get an idea for how a company compares.

Inventory Turnover Formula

The inventory turnover formula is:

inventory\ turnover=cost\ of\ goods\ sold/average\ inventory

Where:

  • Cost of Goods Sold – Cost of Goods Sold or COGS off the income statement. Some practitioners use top-line revenue, but COGS should better approximate input costs for inventory.
  • Average Inventory – The average inventory at the beginning and end of a period. The tool computes it as the inventory last period plus the inventory in the current period, divided by 2.

Once you have the inventory turnover number, you can easily estimate how many days of sales the current inventory could support.

Days of Sales in Inventory Formula

The days of sales in inventory formula is:

days\ of\ sales\ in\ inventory=days\ in\ period/inventory\ turnover

Where:

  • Days in Period – The number of days in the period (if using annual reports, the tool internally uses 365 days, vs. 91 for quarterly)
  • Inventory Turnover – The average inventory at the beginning and end of a period. The tool computes it as the inventory last period plus the inventory in the current period, divided by 2.

Once you have the inventory turnover number, you can easily estimate how many days of sales the current inventory could support.

Other Liquidity Calculators

All liquidity calculators give a temperature check on a company's ability to stay liquid by paying off creditors on liabilities due in the next year. Here are some other tools showing liquidity ratios:

      

PK

PK started DQYDJ in 2009 to research and discuss finance and investing and help answer financial questions. He's expanded DQYDJ to build visualizations, calculators, and interactive tools.

PK is in his mid-30s and works and lives in the Bay Area with his wife, two kids, and dog.

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