What turnover tells you
Inventory turnover = COGS ÷ average inventory. Five turns a year means you sell and replace your entire stock five times. The inverse, multiplied by 365, is days inventory outstanding (DIO) — how long cash sits on a shelf before coming back.
The cash-flow consequence
Every extra turn frees working capital. On 100,000 of average inventory, moving from 4 turns to 6 releases roughly 33,000 of cash — which is often more than a year of profit improvement from margin work.
What is healthy depends on category
- Apparel and fast fashion: 6–12 turns
- Consumer electronics: 8–15 turns (obsolescence risk)
- Furniture and bulky goods: 2–4 turns
- Consumables: 12+ turns
Diagnosing a low number
Low turnover usually means over-ordering on a few SKUs, a long lead time forcing big buys, or a product that simply is not selling. Split the number by SKU before acting — the aggregate hides the culprit.
Frequently Asked Questions
Should I use average or ending inventory?
Average (start + end ÷ 2) smooths seasonality; ending inventory can flatter or distort the ratio.
What is a good turnover ratio?
It depends on category — compare within your niche, not against retail averages overall.
How does turnover affect cash?
Higher turnover means less cash tied up in stock, which funds growth without borrowing.
Assumptions & disclaimer
Results are estimates for planning. Fee schedules, tax brackets and deduction limits change; confirm current figures with the marketplace, the IRS or a qualified accountant before making decisions. Nothing here is financial, tax or legal advice.
Privacy & Your Data
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