Inventory turnover measures the relationship between cost of goods sold and average inventory value over the same period. It is commonly expressed as inventory turns:
Inventory turnover = Cost of goods sold ÷ Average inventory at cost
The ratio helps you investigate how much stock supports a given level of sales. It does not establish whether purchasing is efficient, customers are well served, or an individual SKU needs replenishment.
Quick answers
How do you calculate inventory turnover? Divide period COGS by average inventory value for the same scope and period. Keep the cost basis consistent. Oracle NetSuite's inventory turnover report documentation uses cost of sales divided by average inventory value.
Is higher turnover always better? No. Review availability, stockouts, margin and the operating plan alongside the ratio. A change in either COGS or average inventory can change turns.
What is a good turnover ratio? Compare similar products, periods and operating models. Lead times, seasonal stock builds and assortment choices matter. Set a target using your service requirements and capital constraints rather than a universal category range.
How do turns relate to days of inventory? For a matching accounting calculation, divide the number of days in the reporting period by turns for that period. Use 365 only when the ratio covers a 365-day year.