Stock value and turnover calculator

What your stock is worth, how many times a year you sell through it, and how long your cash is sitting on a shelf instead of in the bank.

A shop with A$13,500 of average stock and A$84,000 of cost of goods sold turns its stock 6.2 times a year, which is 58.7 days of stock; the starting figures below show exactly this.

What is inventory turnover?

Inventory turnover is how many times you sell through your average stock in a year. Higher generally means cash moving rather than sitting; lower means stock is piling up faster than it sells.

It is a stock-room number as much as an accounting one. A shop that turns its stock twelve times a year sells through everything it holds roughly once a month; one that turns it twice is holding six months of stock at any given moment, whether that is deliberate or not.

What is the inventory turnover ratio?

The inventory turnover ratio is the same idea as a single number: cost of goods sold divided by average stock held, over the same period.

It measures efficiency, not size. A A$50,000 shop turning its stock eight times a year is using its money harder than a A$500,000 warehouse turning it twice, even though the warehouse holds ten times the stock. The ratio is what makes the two comparable at all.

Inventory turnover formula

Inventory turnover ratio = cost of goods sold ÷ average inventory.

Average inventory is opening stock plus closing stock, divided by two - the same two numbers the calculator above already asks for. Cost of goods sold is what the things you actually sold cost you, not what you sold them for.

Worked example: cost of goods sold of A$84,000, opening stock of A$12,000 and closing stock of A$15,000.

Average inventory is (A$12,000 + A$15,000) ÷ 2 = A$13,500. Turnover is A$84,000 ÷ A$13,500 = 6.2 - the business sells through its stock a little over six times a year, or roughly once every fifty-nine days.

How to calculate inventory turnover

1. Take your cost of goods sold for the period - what the things you sold actually cost you, not what they sold for.
2. Add your opening and closing stock value for the same period and divide by two, for the average stock held.
3. Divide cost of goods sold by that average. The result is how many times you turned your stock over in the period.
4. To see it in days instead of times, divide the number of days in the period by the turnover figure.

The calculator above does this arithmetic for you - put your own opening stock, closing stock and cost of goods sold in and the ratio, the days figure and the average stock held are worked out as you type.

Whose money is sitting on your shelves

Days of stock is a cash figure wearing a calendar's clothes.

Say your cost of goods sold is A$120,000 a year. That is about A$329 a day. Ninety days of stock therefore means roughly A$29,600 of your money is on the shelves at any moment, doing nothing until somebody buys it.

Now look at what your suppliers give you. On thirty days' credit they are funding about A$9,900 of that, and you are funding the other A$19,700 yourself. That second number is the one that decides whether a good month feels like a good month or like a scramble, and most people have never worked it out.

It also tells you exactly what an improvement is worth. Take thirty days off your cover - by ordering more often, or by clearing the lines that never move - and you release about A$9,900 in cash, permanently, without selling a single extra thing. That is usually more than a year of arguing over supplier prices would win you.

The same figure works in the other direction, which is the part that catches people out. Deciding to hold an extra month of stock "to be safe" is a decision to lend the business another A$9,900, and it is a decision worth making on purpose rather than by drifting into it one over-order at a time.

What is a good inventory turnover ratio?

There is no universal number and anybody who gives you one is guessing. A greengrocer turning stock fifty times a year and a furniture shop turning it three times can both be perfectly healthy, because the stock, the margins and the shelf lives are nothing like each other.

Two comparisons are worth more than any benchmark. The first is you, last quarter: the direction the number moves is the signal, and it moves before anything shows up in the bank. The second is your own product lines against each other, because the average across a whole shop hides the fast movers subsidising the slow ones, and it is nearly always the same few lines doing each job.

High vs low inventory turnover

Neither direction is automatically good, which is the part a single benchmark number always leaves out.

High turnover usually means cash moving quickly, but pushed too far it can mean you keep running out - a sale you cannot fill costs more than the stock would have cost to hold, and that lost sale never shows up in the turnover figure itself. Low turnover usually means cash sitting on a shelf, but a genuinely seasonal or slow-moving line can have a low number and still be exactly the stock a business needs to carry.

The question worth asking is not "is this number high or low" but "do I know why." A number that surprises you is worth a look; a number you already understood before you calculated it usually is not.

Inventory turnover days

Turnover said as a length of time instead of a count: how many days your average stock would last at the rate you are selling.

Days of stock = 365 ÷ turnover ratio (or the number of days in whatever period you are measuring, divided by the turnover for that period). A turnover of six means roughly sixty-one days of stock; a turnover of twelve means roughly thirty days. It is the same fact as the ratio, said in the unit most people actually think in - how long until this runs out or gets sold.

How to improve inventory turnover

Four places to look, in the order they usually pay off.

• Find the dead stock first. Stock that has not sold in months is not neutral - it is cash you have already spent, sitting there instead of buying something that would sell. It is usually the single biggest lever, and the one most shops have never actually measured.
• Order more often, in smaller amounts. Halving how much you order each time roughly halves the average stock you carry for the same total sales, which doubles turnover on that line without selling a single extra unit.
• Check your reorder points, not just your instincts. A minimum set from a guess a year ago is usually wrong in one direction or the other by now.
• Discount or clear what is not moving, deliberately, rather than letting it sit another quarter in the hope it sells itself.

All four are things you can only act on if you can actually see which products are the slow ones - not just the total. StockRoom's Optimise screen lists exactly that, worked out from movements you have already recorded.

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