Inventory Turnover Ratio: Formula, Example and Excel Steps
Summary
Inventory turnover ratio = Cost of goods sold ÷ Average inventory. It counts how many times you sold through your average stock in a period. A retailer with $2.17M of annual COGS and $437,200 of average inventory turns its stock 4.96 times a year, about every 74 days.
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Inventory turnover ratio formula
Inventory turnover = Cost of goods sold ÷ Average inventory (at cost)- Cost of goods sold: Cost of the inventory that was sold during the period, taken from the income statement.
- Average inventory: Inventory value at cost averaged over the period. Use as many balance points as you have (monthly or quarter-end), not only the opening and closing values.
- Days in inventory: 365 ÷ inventory turnover: the average number of days stock sits before it is sold.
How to calculate inventory turnover ratio in Excel and Google Sheets
Excel, using the cells in the worked example below:
=B7/AVERAGE(B2:B6)Worked example
An outdoor-gear retailer wants its 2026 inventory turnover. Stock builds sharply before the autumn season, so it uses five balance points instead of just January and December.
| Item | Value at cost |
|---|---|
| Inventory, Dec 31 2025 | $412,000 |
| Inventory, Mar 31 2026 | $388,000 |
| Inventory, Jun 30 2026 | $455,000 |
| Inventory, Sep 30 2026 | $501,000 |
| Inventory, Dec 31 2026 | $430,000 |
| COGS, 2026 | $2,170,000 |
- Average inventory = (412,000 + 388,000 + 455,000 + 501,000 + 430,000) ÷ 5 = $437,200.
- Inventory turnover = 2,170,000 ÷ 437,200 = 4.96 turns.
- Days in inventory = 365 ÷ 4.96 = about 73.5 days.
- Using only the opening and closing balances, average inventory would be (412,000 + 430,000) ÷ 2 = $421,000 and turnover 5.15. That flatters the result because it misses the September peak.
Result: 4.96 turns per year (about 73.5 days in inventory)
How to interpret inventory turnover ratio
Higher turnover usually means leaner stock and less cash tied up, but the right level depends on what you sell: grocery and fast fashion turn many times a year, while furniture, jewelry and industrial parts often turn only a few times. Read it alongside gross margin and stockouts. Turnover that rises because you are constantly out of stock is not a win, and a low ratio concentrated in a few slow SKUs is a markdown problem, not a company-wide one. Trend it quarterly and break it down by category before acting.
Common mistakes
- Using sales revenue instead of COGS in the numerator. Revenue includes your markup, so the ratio comes out inflated and won't match days-in-inventory calculations.
- Averaging only two balance points for a seasonal business. Use monthly or quarterly balances so the peak build is counted.
- Comparing a trailing-12-month ratio with a quarterly one. A single quarter's COGS divided by average inventory gives a quarterly figure; multiply by 4 (or use annual COGS) before comparing.
- Reading the company-wide number only. One fast category can hide a pile of slow-moving stock; calculate turnover per category or SKU.
Calculate inventory turnover ratio with Better Analyst
Connect your data or upload a spreadsheet, then ask in plain English. Better Analyst writes and runs the calculation and shows the steps, so you can check the number.
- “Calculate inventory turnover and days in inventory by category for the last 12 months.”
- “Which SKUs have more than 180 days of inventory on hand at the current sales rate?”
- “Compare our turnover this year with last year using monthly inventory balances.”
Usually calculated from: Google Sheets, Google BigQuery, Snowflake, MySQL, PostgreSQL, 
Microsoft SQL Server.