What is the formula for the inventory (stock) turnover ratio, with an example?

Inventory turnover ratio = cost of goods sold ÷ average inventory, where average inventory = (opening stock + closing stock) ÷ 2. Example: COGS of ₹1.2 crore, opening stock of ₹25 lakh and closing stock of ₹15 lakh give an average of ₹20 lakh and a ratio of 6. Class 12 textbooks call COGS "cost of revenue from operations".

How do you convert the inventory turnover ratio into days?

Divide 365 by the ratio. A turnover of 6 gives 365 ÷ 6, or about 61 days, which is how long an average unit waits before it sells. For a quarter, use 90 or 91 days instead of 365. A per-SKU version works the same way: a SKU turning 12 times a year sells its average stock in about 30 days.

What is a good inventory turnover ratio for an ecommerce or retail brand?

It varies by category. Fashion, beauty, packaged food and electronics turn at different speeds, and seasonality changes the picture through the year. A useful test is your own trend and how each SKU compares with similar SKUs in your catalogue. A falling ratio on a product usually means stock is building up faster than it sells.

What is the difference between inventory turnover and days of inventory (DIO)?

They measure the same thing in two forms. Turnover says how many times stock is sold and replaced in a period; days of inventory, also called DIO (days inventory outstanding) or DSI (days sales of inventory), says how many days the average unit waits before it sells. DIO = 365 ÷ turnover, so a turnover of 6 equals about 61 days. Higher turnover means lower DIO.

What lowers inventory turnover, and how can a D2C brand improve it?

Turnover falls when stock builds up faster than it sells: over-buying, slow sizes and colours, dead stock left on the books, and stock counts that show more than is on the shelf. To raise it, clear dead stock and stop rebuying it, set reorder points and safety stock per SKU, buy new variants in smaller first lots, and keep counts right with regular cycle counts.

Should you measure inventory turnover per SKU or for the whole business?

Both, for different reasons. The whole-business ratio is what lenders, investors and accountants read. The per-SKU ratio is what drives buying decisions: it shows which products sell through quickly and which hold cash for months. A healthy brand-wide ratio can hide a long tail of slow SKUs, so review the slowest ones every month.

Is a high inventory turnover always good?

No. A high ratio usually means stock sells quickly, but a ratio pushed up by buying too little can mean frequent stockouts, cancelled marketplace orders and lost sales. It can also mean many small, costly purchase orders. Read turnover alongside stockout days, and compare each SKU with its own history rather than chasing a higher number.

What is the inventory turnover ratio?

The inventory turnover ratio, also called the stock turnover ratio, shows how many times a business sells and replaces its stock in a period, usually a year. It is cost of goods sold divided by average inventory at cost. A higher ratio means stock sells faster; a lower one means money sits on shelves for longer.

How the inventory turnover ratio works for a D2C brand

The accounting formula

Inventory turnover ratio = cost of goods sold (COGS) ÷ average inventory at cost

Average inventory = (opening stock + closing stock) ÷ 2

Class 12 accountancy textbooks write the numerator as “cost of revenue from operations”, which is the same idea: revenue from operations minus gross profit, or opening stock plus net purchases plus direct expenses minus closing stock. Use cost, not selling price, on both sides; dividing sales by stock at cost overstates the ratio.

Days of inventory

Days of inventory = 365 ÷ inventory turnover ratio

This turns the ratio into the number of days an average unit waits before it sells.

Example (₹). A brand’s COGS for the year is ₹1.2 crore. Opening stock was ₹25 lakh and closing stock ₹15 lakh, so average inventory is ₹20 lakh.

Inventory turnover = ₹1.2 crore ÷ ₹20 lakh = 6 times a year. Days of inventory = 365 ÷ 6 ≈ 61 days. The figures are illustrative.

The units version, per SKU. If you track stock in units rather than at cost, then for one product, turnover = units sold ÷ average units on hand gives the same picture without cost data.

Example (units, per SKU).

SKU	Units sold in the year	Average units on hand	Turnover	Days of inventory
Face wash 100 ml (fast)	2,400	200	12	about 30
Face wash 50 ml (slow)	300	200	1.5	about 243

Both SKUs hold 200 units, but the slow one ties up the same cash for eight times as long. A brand-wide ratio of 6 can hide that. The fast SKU needs its reorder point checked often; the slow one needs smaller orders, and may be on its way to dead stock.

What a “good” ratio is. It varies by category. Fashion with seasonal collections, beauty with expiry dates, packaged food and electronics all turn at different speeds, and a brand’s own trend over time says more than a single number. Compare a SKU with its own history and with similar SKUs in your catalogue.

How to raise it

Clear dead stock and stop buying more of it.
Set reorder points and safety stock per SKU instead of one rule for the catalogue.
Buy new sizes and colours in smaller first lots until their sales speed is known.
Count stock regularly with cycle counts, so the “on hand” figure is right.

Valuation of stock, write-downs and how turnover appears in the books are questions for your accountant.

Common mistakes

Mixing selling price and cost. Sales at selling price divided by stock at cost inflates the ratio.
Using only closing stock. A year-end figure after a sale or a big delivery distorts the average; use the average of opening and closing, or of monthly figures.
Looking only at the brand-wide ratio. It hides the slow SKUs that hold cash for months.
Comparing with another category’s number. A fashion brand and a snacks brand don’t share a benchmark.
Chasing a higher ratio by cutting stock too far. Stockouts and cancelled orders cost more than the stock saved.

Days of inventory (DIO) = 365 ÷ turnover. Example: 365 ÷ 6 ≈ 61 days.
Sell-through rate = units sold ÷ units received in a period. Example: 450 sold of 600 received = 75%.
Inventory shrinkage = recorded stock − counted stock. Unrecorded losses overstate inventory and understate turnover.

Inventory turnover in the Indian context

Storage costs on marketplaces. Amazon.in’s FBA FAQ lists storage of your products in its fulfilment centres among the services FBA fees cover, so slow-turning stock sent there carries a storage cost as well as tied-up cash. Check the current fee page for amounts.
Festive seasons. Diwali and the big marketplace sales lift turnover for a few weeks. Measure over twelve months, or compare the same months year on year.
Exam and accounting use. In class 12 accountancy and CA or CMA courses, the ratio is an activity ratio calculated from the profit and loss account and balance sheet. The warehouse version per SKU uses the same idea with units.

Questions and answers

What is the inventory turnover ratio?: It is the number of times a business sells and replaces its stock in a period, usually a year. It is calculated as cost of goods sold divided by average inventory at cost. A ratio of 6 means the average stock was sold and replaced six times in the year. It is also called the stock turnover ratio.
What is the formula for the inventory (stock) turnover ratio, with an example?: Inventory turnover ratio = cost of goods sold ÷ average inventory, where average inventory = (opening stock + closing stock) ÷ 2. Example: COGS of ₹1.2 crore, opening stock of ₹25 lakh and closing stock of ₹15 lakh give an average of ₹20 lakh and a ratio of 6. Class 12 textbooks call COGS "cost of revenue from operations".
How do you convert the inventory turnover ratio into days?: Divide 365 by the ratio. A turnover of 6 gives 365 ÷ 6, or about 61 days, which is how long an average unit waits before it sells. For a quarter, use 90 or 91 days instead of 365. A per-SKU version works the same way: a SKU turning 12 times a year sells its average stock in about 30 days.
What is a good inventory turnover ratio for an ecommerce or retail brand?: It varies by category. Fashion, beauty, packaged food and electronics turn at different speeds, and seasonality changes the picture through the year. A useful test is your own trend and how each SKU compares with similar SKUs in your catalogue. A falling ratio on a product usually means stock is building up faster than it sells.
What is the difference between inventory turnover and days of inventory (DIO)?: They measure the same thing in two forms. Turnover says how many times stock is sold and replaced in a period; days of inventory, also called DIO (days inventory outstanding) or DSI (days sales of inventory), says how many days the average unit waits before it sells. DIO = 365 ÷ turnover, so a turnover of 6 equals about 61 days. Higher turnover means lower DIO.
What lowers inventory turnover, and how can a D2C brand improve it?: Turnover falls when stock builds up faster than it sells: over-buying, slow sizes and colours, dead stock left on the books, and stock counts that show more than is on the shelf. To raise it, clear dead stock and stop rebuying it, set reorder points and safety stock per SKU, buy new variants in smaller first lots, and keep counts right with regular cycle counts.
Should you measure inventory turnover per SKU or for the whole business?: Both, for different reasons. The whole-business ratio is what lenders, investors and accountants read. The per-SKU ratio is what drives buying decisions: it shows which products sell through quickly and which hold cash for months. A healthy brand-wide ratio can hide a long tail of slow SKUs, so review the slowest ones every month.
Is a high inventory turnover always good?: No. A high ratio usually means stock sells quickly, but a ratio pushed up by buying too little can mean frequent stockouts, cancelled marketplace orders and lost sales. It can also mean many small, costly purchase orders. Read turnover alongside stockout days, and compare each SKU with its own history rather than chasing a higher number.

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Last reviewed: 5 November 2026 by Fretron.

Sources

Fulfillment by Amazon: Frequently Asked Questions ("What are the charges?"). Amazon.in. https://sell.amazon.in/shipping-and-fulfillment/fulfillment-by-amazon/fba-faq (undated page; accessed 5 Nov 2026).