Inventory turnover: calculate turns and inventory days

Choose the same period and valuation basis

The fictional company has annual revenue of SEK 1,000 million and cost of sales of 600 million. Inventory carrying value is 80 million at the year’s beginning and 120 million at its end. The year is twelve months and our time conversion uses 365 days. All amounts are invented teaching data.

Our inventory definition uses cost of sales rather than sales revenue. Inventory is carried as an asset, while sales revenue may include a margin. Choosing revenue as numerator would therefore create a different relationship. Read the inventory note and cost line when comparing a real company, and check that units match.

If the table does not fit, scroll it sideways.

An average of SEK 100 million gives six turns

The two-point average is (80 + 120) / 2 = SEK 100 million. Inventory turnover is 600 / 100 = 6 times during the year. Dividing only by ending inventory gives 600 / 120 = 5 times. The latter uses a different base from the one we selected.

Revenue of 1,000 million divided by the same average would give ten times. That is not the measure under our definition. Record the cost line and averaging method beside the answer. If average inventory is zero, division is undefined; a company without this kind of inventory needs other relevant supporting data.

Inventory days are a derived estimate

Our annual model produces illustrative average inventory days of 365 / 6 ≈ 60.83 days. This converts the aggregate measure. We have not followed individual items from purchase to sale and cannot state that every item stayed in inventory for exactly 60.83 days.

In a separate six-month example, cost of sales is SEK 300 million and average inventory 75 million. The ratio is four turns during those six months. With that period specified as 182 days, conversion gives 182 / 4 = 45.5 days. It is not four turns per full year and does not establish the next half-year’s pace.

Investigate why the ratio changes

A two-point average can miss large seasonal inventory peaks. A changed ratio may also need explanation through product mix, deliveries and reported write-downs. We state no generally desirable level. A higher number alone does not establish sufficient stock, increasing profit or timely customer delivery.

Investiq’s company guide helps check identity and period for your material. This inventory calculation uses report components and does not promise an inventory-analysis feature in the app. Continue with gross margin for the relationship between revenue and cost of sales, or working capital for inventory’s place in the wider balance sheet.