Inventory Turns Calculator

How it's calculated

• Average inventory = (start of year + end of year) ÷ 2. If inventory swings during the year, an average of monthly balances is more accurate.
• Inventory turns = annual cost of goods sold ÷ average inventory.
• Days on hand = 365 ÷ turns.
• Cash freed = average inventory − (annual cost of goods sold ÷ 365 × target days).

Why inventory is a cash question

Every dollar of inventory is a dollar you've paid for and can't spend on payroll, equipment or debt. For many manufacturers it's the biggest use of cash on the balance sheet. Pair this with a 13-week cash flow forecast to see when freed-up cash actually lands.

Frequently Asked Questions

What are inventory turns?

Inventory turns measure how many times you use up and replace your average inventory in a year: annual cost of goods sold divided by average inventory. Higher turns mean less cash tied up on the floor and in the warehouse.

What is days inventory on hand?

Days inventory on hand (also called days inventory outstanding) is how many days of cost of goods sold your inventory represents: 365 divided by turns. It is one of the three parts of the cash conversion cycle.

What is a good inventory turn rate for a manufacturer?

It depends heavily on what you make, lead times and whether you build to stock or to order, so compare yourself with your own history and close peers rather than a single benchmark. The trend matters more than the number.

How do I free up cash from inventory?

Find slow-moving and obsolete stock, review reorder points and safety stock, match purchasing to the production plan, and watch work in process. The calculator shows how much cash a lower days-on-hand target would release.