What Is Inventory Turnover?
Inventory turnover measures how many times a company sells through and replaces its inventory during a period. It compares the cost of the goods sold to the average inventory held, showing how efficiently inventory is being used. A high turnover means inventory sells quickly and little capital sits on the shelf; a low turnover means goods are moving slowly, tying up cash and risking obsolescence. For any business that holds stock, it is one of the most watched operational metrics.
How to Calculate Inventory Turnover
Inventory Turnover = Cost of Goods Sold / Average Inventory
Worked example:
- Cost of goods sold: $6,000,000
- Average inventory: $1,000,000
- Inventory turnover: 6,000,000 / 1,000,000 = 6
The company turns its inventory six times a year, roughly once every two months.
Inventory Turnover in Power BI (DAX)
Average inventory is often the average of the beginning and ending balance. Replace the measures with the ones in your model:
Average Inventory = DIVIDE ( [Beginning Inventory] + [Ending Inventory], 2 )
Inventory Turnover = DIVIDE ( [Total COGS], [Average Inventory] )What Is a Good Inventory Turnover?
The right turnover varies enormously by industry. A grocery store turns perishable stock many times a year; a heavy-equipment dealer turns slow-moving inventory only a few times. Turnover is most useful compared within an industry and tracked over time. Too low suggests overstocking or weak demand; unusually high can mean stockouts and lost sales, so the goal is the right balance, not simply the highest number.
Inventory Turnover and Days Inventory Outstanding
Inventory turnover and days inventory outstanding are two views of the same thing. Turnover counts how many times inventory cycles in a period; days inventory outstanding converts that into the average number of days stock is held (365 divided by turnover). Both feed the cash conversion cycle, because inventory that moves faster ties up less cash.
Reporting Inventory Turnover From Your ERP Data
Inventory turnover depends on cost of goods sold and inventory balances pulled consistently from the ERP, which is where it gets difficult across warehouses and entities. A governed data foundation brings cost and inventory data onto one model so turnover is consistent and traceable. QuickLaunch ships pre-built models for JD Edwards, Vista, NetSuite, and OneStream that surface inventory and cost data for operational reporting.
Frequently Asked Questions
How is inventory turnover calculated?
Divide the cost of goods sold by average inventory. A company with $6M in COGS and $1M average inventory has an inventory turnover of 6, meaning it sells through its inventory six times a year.
What is a good inventory turnover?
It varies widely by industry, so it is best compared within an industry and tracked over time. Too low can mean overstocking or weak demand; very high can mean stockouts. The goal is the right balance for the business.
What is the difference between inventory turnover and days inventory outstanding?
Turnover counts how many times inventory cycles in a period. Days inventory outstanding converts that into the average days stock is held (365 divided by turnover). They describe the same efficiency from two angles.
