Two numbers, one fact
Turnover is cost of goods sold divided by average inventory. Days of inventory is 365 divided by the annual turnover. They say the same thing in different units, and most people find the days figure easier to argue with because it is concrete. Five hundred thousand dollars of COGS against eighty thousand dollars of average inventory is 6.25 turns, which is 58.4 days: at the current rate of sale, what is on the shelf today lasts just under two months.
Average inventory is normally the opening and closing figures halved, which is what this page does. If you have month-end counts for the whole year, average those thirteen readings instead and enter the result in both boxes — it is a better average, and in a seasonal business it is a substantially better one.
Why it has to be cost, not sales
Inventory is carried at cost, so dividing sales by it mixes two different bases and inflates the ratio by exactly your margin. A business running a 40 percent margin that divides revenue by stock will report turns roughly 1.7 times higher than the truth, which is the difference between a comfortable position and a problem.
If you do not have a COGS figure to hand, opening inventory plus purchases minus closing inventory gives it for the period. Approximating with sales × (1 − margin) works too, and is close enough for a first look as long as you remember it inherits whatever is wrong with the margin figure.
What a good number is
There is no universal answer and anyone who gives you one is quoting a different industry than yours. Fresh food turns in days because it has to. Jewellery, furniture and specialist parts turn a couple of times a year because the whole point is having the item somebody wants in stock. What matters more than the absolute number is the direction it moves in your own business, and the spread between your fastest and slowest lines.
Comparing a blended figure against a published benchmark is the least useful thing you can do with this ratio. The useful thing is to compute it per line, sort ascending, and look at the bottom of the list. That is where the cash is.
The cost of the excess
Stock above what you need is not free to hold. It is capital you cannot use, space you are renting, insurance you are paying, and inventory that is quietly losing value through damage, shrink and going out of style. This page lets you put your own carrying cost percentage against it because the real figure varies enormously — a pallet of screws and a rack of seasonal clothing decay at very different rates.
The other side of the ledger is real too. Cutting inventory to raise the ratio produces stockouts, and a lost sale never appears in any of these numbers, which is what makes turnover such a comfortable metric to optimise into a hole. Order less on the slow lines, not on everything.
Questions people ask
Can I run this for a single month?
Yes — set the period to one month and use the opening and closing stock for that month. The annualised figure is shown alongside so you can compare it with a full year. Be careful reading a single month in a seasonal business: a January count after a December run-down flatters the ratio, and a September count while you build for the holidays ruins it. Neither reflects how the business actually runs. A twelve-month window smooths that out, and a rolling twelve months recomputed each month is better still.
What if I have month-end counts rather than just two figures?
Average all of them — thirteen readings if you have the prior year-end plus twelve month-ends — and put that average into both the beginning and ending boxes. The two-point average this page defaults to assumes stock moved in a straight line between the endpoints, which is rarely true and is badly wrong when the business is seasonal or when you made a large one-off purchase mid-period.
Turnover went up. Is that good?
Only if you know why. It goes up when sales improve, and it also goes up when you run short and cannot fill orders, when you write off dead stock, or when a supplier had you on allocation. The first is good news and the others are the ratio rewarding you for a bad month. Check whether COGS rose or inventory fell — if the ratio improved because the numerator grew you are selling more, and if it improved because the denominator shrank, find out whether that was a decision or an accident.
Should service parts or safety stock be excluded?
Consider running them separately rather than excluding them. Stock held deliberately for availability — critical spares, long lead-time items, a display range you need complete — is doing a job that turnover measures as failure. Blending it with fast-moving goods drags the ratio down and hides what the sellable range is really doing. Two numbers, one for goods you intend to turn and one for stock you hold on purpose, tell you far more than one average.