Inventory finance
Inventory Turnover
By the Supply Chain Manager team · Updated October 16, 2026
Inventory turnover is how many times inventory is sold and replaced over a period, usually a year: cost of goods sold divided by average inventory value.
Higher turnover means stock moves faster and less cash is tied up for each dollar of sales. Very high turnover can also mean stock is too thin and stockouts are frequent, so read it alongside fill rate.
It can be calculated in value (COGS ÷ average inventory at cost) for the business, or in units (units sold ÷ average units on hand) for a single SKU.
How to calculate inventory turnover
Inventory Turnover = Cost of Goods Sold ÷ Average Inventory (at cost) Average Inventory = (Opening Inventory + Closing Inventory) ÷ 2
Inventory turnover example
Illustrative numbers: COGS of $3.6 million and average inventory of $600,000 give a turnover of 6, meaning stock turns over about every two months. Raising it to 8 at the same sales would release $150,000 of cash.
Why inventory turnover matters for distributors
Turnover is the bridge between inventory and cash. Looking at it by category or SKU shows where stock is earning its keep and where it is sitting.
Common inventory turnover mistakes
- Dividing sales at selling price by inventory at cost, which overstates turnover.
- Comparing turnover across very different product types without context.
Examples on this page use made-up round numbers to show the calculation. They are not benchmarks or results from real businesses.