What is the inventory turnover ratio?

Cost of goods sold divided by average inventory.

How do I calculate days of inventory?

365 divided by inventory turnover.

Is a high turnover always good?

Not if it causes stock-outs; balance with service level.

How can software help?

By highlighting slow stock, forecasting demand and suggesting what to reorder.

Inventory Turnover Ratio: Formula, Example and How to Improve It

Inventory turnover shows how many times you sell and replace your stock in a year. It is the quickest measure of whether your money is working or sleeping on shelves.

The formulas

Inventory turnover = Cost of goods sold ÷ Average inventory
Days of inventory = 365 ÷ Inventory turnover

Average inventory is usually (opening stock + closing stock) ÷ 2, valued at cost.

Worked example

Item	Value (₹)
Cost of goods sold (year)	1,20,00,000
Opening stock	28,00,000
Closing stock	32,00,000
Average inventory	30,00,000
Turnover	1,20,00,000 ÷ 30,00,000 = 4.0 times
Days of inventory	365 ÷ 4 = about 91 days

What is a good ratio?

It depends entirely on the business. Fresh produce turns in days; machinery in months. Compare against your own history and similar businesses, not a universal number.

Ways to improve it

Identify and clear slow and non-moving stock
Reorder by data (reorder point and forecast), not by habit
Reduce supplier lead time or negotiate smaller, more frequent deliveries
Use ABC classes to focus on high-value items
Balance stock between warehouses
Stop buying items that rarely sell

Pitfalls

Do not chase turnover so hard that you stock out; service level matters too.
Seasonal businesses should compare like periods.
Use consistent valuation.

In NexoraIMS

Inventory health shows money in non-moving, excess and dead stock, the days limits you set and a health score per product. Gross margin and stock value appear on the dashboard. See inventory analytics software and dead stock.