Stock Turn (Inventory Turnover) Calculator
Measure how efficiently your business manages and sells its inventory.
What is Stock Turn?
Stock turn, also known as inventory turnover, is a financial ratio showing how many times a company has sold and replaced inventory during a specific period. It is a critical efficiency metric for retailers, wholesalers, and manufacturers.
How to Calculate Stock Turn Ratio
The calculation requires two primary figures: the Cost of Goods Sold (COGS) from your income statement and the average inventory value from your balance sheet. The formula is:
Stock Turn Ratio = Cost of Goods Sold / Average Inventory
Where Average Inventory = (Beginning Inventory + Ending Inventory) / 2.
Understanding the Results
- High Turnover Ratio: Generally indicates strong sales or effective inventory management. However, a ratio that is too high might mean you are understocking and losing out on potential sales.
- Low Turnover Ratio: Suggests weak sales or excess inventory (overstocking). This can lead to increased storage costs and the risk of inventory becoming obsolete or spoiled.
- Days Sales in Inventory (DSI): This tells you the average number of days it takes to turn your inventory into sales. A lower DSI is usually preferred.
Practical Example
Imagine a retail store with the following data for the year:
- Cost of Goods Sold: $600,000
- Inventory on Jan 1st: $90,000
- Inventory on Dec 31st: $110,000
Step 1: Calculate Average Inventory: ($90,000 + $110,000) / 2 = $100,000.
Step 2: Calculate Ratio: $600,000 / $100,000 = 6.0.
Step 3: Calculate DSI: 365 / 6.0 = 60.8 days.
This means the store clears its entire inventory roughly 6 times a year, or every 61 days.