What is a good inventory turnover?

It depends on the industry and the business model. Compare with your own history and with similar companies, and look at turns by category rather than one company-wide number.

Should turns be calculated at cost or at selling price?

At cost, so that the numerator and the denominator are on the same basis.

Can turns be too high?

Yes. Very high turns with frequent stockouts usually mean inventory has been cut below what the lead times and variability require.

Glossary

What is inventory turnover? Formula, example and limits

Inventory turnover: Inventory turnover measures how many times inventory is used or sold and replaced over a period, usually a year.

Inventory turnover = cost of goods sold / average inventory value

By Roufaida Bouchamha, founder

The definition

Inventory turnover (or inventory turns) tells you how fast inventory moves. A higher number means stock is converted into product and sales more often; a lower number means more value sits on the shelves for longer. It is a company-level or category-level ratio, mostly used by finance and operations leaders.

How to calculate it

Cost of goods sold over the period, usually 12 months.
Average inventory value over the same period, for example the average of month-end values.
Divide the first by the second. Days of inventory is 365 divided by turns.

Illustrative example, not a customer result

A company with 24 million of cost of goods sold and an average inventory of 6 million turns its inventory 4 times a year, or about 91 days of inventory on average.

What turns do not tell you

Which items are the problem. A good overall ratio can hide slow movers and parts that keep running short.
Whether stock is in the right place. Excess on some parts and shortages on others can average out to a normal ratio.
The risk ahead. Turns describe the past year, not the next two weeks.

That is why teams pair turns with item-level measures: value above target for excess, and days of cover for parts that will run short.

Common ways to improve turns

Stop reordering items already above target.
Review reorder points and safety stock set on old lead times or old volumes.
Deal with slow movers and obsolete stock.
Shorten lead times where possible, which lowers the stock needed to cover them.

How WERISCO uses it

WERISCO works at the item level: it shows value held above your own target levels, item by item, slow movers, and parts that will run short, from your ERP or your exports. It does not promise a turns improvement or a working capital result; your team decides what to change.

Questions people ask

What is a good inventory turnover?: It depends on the industry and the business model. Compare with your own history and with similar companies, and look at turns by category rather than one company-wide number.
Should turns be calculated at cost or at selling price?: At cost, so that the numerator and the denominator are on the same basis.
Can turns be too high?: Yes. Very high turns with frequent stockouts usually mean inventory has been cut below what the lead times and variability require.