Calculate inventory turnover ratio, days sales of inventory, and carrying costs to optimize stock levels and working capital.
This calculator turns three numbers - cost of goods sold, beginning inventory, and ending inventory - into the inventory turnover ratio (how many times per year you sell through your stock) and days sales of inventory (the average days between buying stock and selling it). Add a carrying-cost rate and it estimates the annual cost of holding that inventory. The step most people get wrong: turnover divides COGS by average inventory, not by the ending balance alone, so a seasonal business that uses year-end stock will badly misstate the ratio.
A concrete input and expected output from the current implementation.
Input
COGS: $500,000; beginning inventory: $80,000; ending inventory: $120,000; carrying cost rate: 25%
Expected output
Average inventory: $100,000. Inventory turnover: 5.0 times per year. Days sales of inventory: 73 days. Annual carrying cost: $25,000.
Average inventory is ($80,000 + $120,000) / 2 = $100,000, so turnover is $500,000 / $100,000 = 5.0. Dividing 365 by 5.0 gives 73 days per sell-through, and 25% of $100,000 is $25,000 in annual holding cost.
The tool averages beginning and ending inventory for the period, then divides cost of goods sold by that average to get the turnover ratio - how many times the entire stock level sells through per year. It converts the ratio to days by dividing 365 by it, so a ratio of 5.0 reads as 73 days on average from purchase to sale.
Carrying cost is average inventory value multiplied by the annual holding-cost rate you supply, covering storage, insurance, obsolescence, and the capital tied up in stock - commonly estimated at 20-30% of inventory value per year. The result is the annual cost of holding the average stock level, which you can weigh against the savings from ordering smaller, more frequent lots.
No. Very high turnover can mean chronic stockouts, rush orders, and lost sales when demand spikes. Very low turnover means cash sits idle and stock risks obsolescence. The sensible target balances holding cost against stockout cost, and it depends on your industry, margins, and supplier lead times rather than any universal number.
There is no single good number: healthy businesses range from under 3 turns a year for capital goods to well over 10 for groceries and other fast-moving consumer goods. Use this tool to establish your own baseline across periods, then compare against averages for your specific category rather than a generic target.
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