Inventory Turnover Ratio Calculator + Formula

Inventory Turnover Rate =
 Cost of Goods Sold (COGS) ÷ Average Inventory

Cost of Goods Sold (COGS)

This is the total cost of producing or purchasing the goods that your business actually sold during a specific period. It includes:

 

• Raw materials
• Labor directly tied to production
• Manufacturing overhead (if applicable)
• For resellers: the purchase price of items sold
  
  

Why it matters: COGS reflects the real cost of fulfilling orders—not just stocking shelves. Using revenue instead of COGS here can distort the turnover rate.

Average Inventory

Average Inventory smooths out the fluctuations in your stock level throughout the period. It’s calculated as:

(Beginning Inventory + Ending Inventory) ÷ 2
This gives a more accurate representation of your typical stock level, rather than just a snapshot from one day.

Pro tip: If you have highly seasonal sales or fluctuating stock, consider using monthly or quarterly averages for better precision.