Inventory turnover = Cost of goods sold / Average inventory ; Days inventory = 365 / Inventory turnover
Inventory turnover shows how quickly a company sells through its stock.
▶ Watch: Inventory Turnover explained in 24 seconds
What it is
Inventory turnover counts how many times a company sells through and restocks its inventory over a period, usually a year. It is cost of goods sold divided by average inventory. A higher number means inventory moves quickly off the shelves.
Why it matters
Fast-moving inventory ties up less cash and lowers the risk of obsolete or marked-down goods, which supports margins and working capital. Very low turnover can signal weak demand or overstocking, while unusually high turnover may mean stock-outs and lost sales. It directly feeds the cash conversion cycle.
How it's calculated
Divide cost of goods sold by average inventory; days inventory outstanding then equals 365 divided by the turnover figure.
How Quintarthai uses it
Cost of goods sold and inventory for this ratio are on the Financials tab of a company deep-analysis page.
Cross-border note. Watch the inventory accounting method: US filers may use LIFO, which is not permitted under IFRS used by Canadian firms, so LIFO-versus-FIFO differences can skew cross-border comparisons.
FAQ
Should I use cost of goods sold or revenue in the numerator?
Cost of goods sold is the correct numerator because inventory is carried at cost, so this matches like with like. Using revenue overstates turnover because revenue includes the profit margin.
Is higher inventory turnover always better?
Usually it signals efficiency, but turnover that is too high can mean the company keeps too little stock and loses sales to stock-outs. The ideal level varies by industry and business model.
Check your understanding
Why is cost of goods sold, rather than revenue, the correct numerator for inventory turnover?
Inventory sits on the balance sheet at cost, so dividing by COGS compares like with like; using revenue inflates the ratio because it embeds the profit margin.