Inventory shows up on the balance sheet as an asset, and for most managers it feels reassuring: "we have the goods." But unsold stock is like a deposit that earns no interest, and it also carries storage, insurance, shrinkage and obsolescence costs. Inventory turnover measures how fast that money moves. In this article we explain how to set up the formula correctly, how to read it by product group, and how to find slow-moving stock and act on it.
The inventory turnover formula
Inventory turnover shows how many times stock is sold and replenished during a period:
Inventory turnover = cost of goods sold (COGS) / average inventory
Average inventory is usually taken as (opening inventory + closing inventory) / 2. If stock levels swing with the seasons, averaging the monthly inventory values gives a more accurate result.
The second indicator that goes with it is days inventory outstanding (DIO):
Days inventory outstanding = (average inventory / COGS) × number of days in the period
or, for an annual calculation, simply 365 / inventory turnover.
With sample figures: if annual COGS is TRY 24,000,000 and average inventory is TRY 6,000,000, inventory turnover is 4; stock turns over four times a year and days inventory outstanding is 365 / 4 ≈ 91 days.
Common calculation mistakes
- Confusing sales with cost. If sales revenue is used as the numerator, turnover comes out higher than it really is, because the sales price includes the profit margin. The consistent approach is to compare cost with cost.
- Using only year-end inventory. Many companies deliberately bring stock down at year end; inventory on a single date does not represent the average.
- Rolling all stock into one number. Fast-moving products hide the ones that do not move at all. The company-wide figure may be 4 while some groups do not turn over even once a year.
The real insight is in the product group breakdown
Company-wide inventory turnover is a starting point for management; the real decisions are made by product group or by product. A sample table:
| Product group | Average inventory | Annual COGS | Turnover | Days in stock |
|---|---|---|---|---|
| Consumables | 800,000 | 9,600,000 | 12 | ≈ 30 |
| Standard products | 3,000,000 | 12,000,000 | 4 | ≈ 91 |
| Custom products | 1,400,000 | 2,100,000 | 1.5 | ≈ 243 |
| Spare parts | 800,000 | 300,000 | 0.375 | ≈ 973 |
(Sample figures, TRY.)
In this table the company-wide turnover is around 4, but in the spare parts group the money sits on the shelf for about three years. That is not necessarily wrong: service commitments may require some parts to be kept in stock. But it should be a conscious decision, not something that simply piled up.
Finding idle stock
Alongside turnover, looking at the last movement date of each item gives quick results. List the items with no outbound movement in the last 6, 12 and 24 months and add up their value. This list often surprises management. Then ask:
- Is this product still being sold, or has it been dropped from the catalog?
- Can it be converted into another product, or can its parts be used?
- Can it be turned into cash through a promotion, the dealer channel or a return to the supplier?
- Is the purchasing team still ordering this product?
The last question matters most: part of the slow-moving stock keeps piling up because of minimum order quantities or automatic reorder rules. The same logic applies to raw material and semi-finished stock in manufacturing and industrial companies.
Inventory turnover and cash
Days inventory outstanding is one of the three components of the cash conversion cycle. Bringing it down from 91 days to 70 days frees up cash permanently at the same sales volume. We walked through this connection with formulas in our article on the cash conversion cycle.
Checklist
- Does the calculation use cost of goods sold rather than sales?
- Is average inventory calculated from monthly values?
- Is turnover tracked by product group?
- Do you know the list and value of stock with no movement in the last 12 months?
- Have automatic reorder rules been reviewed for slow-moving products?
- Is strategically held stock (such as spare parts) flagged separately?
How we do it at Globya
Stock data is already in your ERP; the hard part is summarizing it meaningfully across years and groups. READERP connects read-only to the common ERP and finance platforms on the market, led by Netsis and Logo, the ERP systems widely used in Türkiye. It is set up the same day and never writes a single line to your ERP. The Stock view comes ready; because it merges fiscal-period databases into a single time series, you can also see how turnover has changed over the years. You can ask questions such as "What is the total value of products with no outbound movement in the past year?" in plain language. For metrics specific to your company, we prepare custom reports as part of our ERP and reporting service.
Frequently asked questions
What is a good inventory turnover ratio?
There is no single right number; it varies widely by industry, product type and supply lead time. The most useful comparison is against the company's own history and between its product groups.
Is cutting inventory enough to improve turnover?
You need to be careful. Cutting stock too far can lead to lost sales and late deliveries. The goal is not to reduce every product, but to reduce slow-moving, non-strategic ones.
Which costing method should be used for the calculation?
It is enough to stay consistent with the costing method you use in your ERP. What matters is that the method does not change between periods; if it has changed, that should be noted when comparing.
The Globya assistant is online 24/7; it answers right away and passes your question to the team if needed.