Blog · Finance metrics and formulas · Distributors
The inventory turnover ratio is cost of goods sold divided by average inventory. This page gives the formula and the data it needs, works it for three categories of a food distributor with the Excel formulas, proves the total as a weighted average, converts turns to days of inventory, and shows why one company figure hides slow categories.
The inventory turnover ratio is cost of goods sold divided by average inventory: how many times a year the inventory is sold and replaced. A distributor with cost of goods sold of $10,200,000 and average inventory of $1,720,000 turns its inventory 5.9 times a year, which is 61.5 days of inventory. That company figure, worked below, hides one category turning 22 times and another turning twice.
Inventory turnover = Cost of goods sold / Average inventory
Average inventory = (Opening inventory + Closing inventory) / 2
Days of inventory = 365 / Inventory turnover = Average inventory / COGS × 365
Inventory turnover and days of inventory on hand are both standard activity ratios in the CFA Institute's reading on financial analysis techniques. The numerator is cost of goods sold, not sales, because inventory is carried at cost: dividing sales by inventory compares selling prices with cost.
Three columns per category, site or SKU, for the same period:
| Column | Content |
|---|---|
| B | Cost of goods sold for the period |
| C | Opening inventory at cost |
| D | Closing inventory at cost |
All three on the same valuation basis. Under US GAAP (ASC 330) inventory is carried at cost, written down when it is worth less, and costed by FIFO, LIFO or average cost; and the cost method behind the inventory balance must be the one behind cost of goods sold. The IRS explains the effect in Publication 538: "In times of inflation, when prices are rising, LIFO will produce a larger cost of goods sold and a lower closing inventory." A LIFO reporter carries older, lower costs in inventory, which inflates its turnover against FIFO peers unless the LIFO reserve is added back.
A food distributor, one fiscal year, USD. Turnover in E2 and days in F2 are:
=B2/((C2+D2)/2)
=365/E2
filled down to row 4.
| Category | COGS (USD) | Opening inventory (USD) | Closing inventory (USD) | Average inventory (USD) | Turns | Days |
|---|---|---|---|---|---|---|
| Refrigerated | 3,600,000 | 150,000 | 170,000 | 160,000 | 22.5 | 16.2 |
| Dry grocery | 5,400,000 | 900,000 | 1,020,000 | 960,000 | 5.6 | 64.9 |
| Nonfood | 1,200,000 | 560,000 | 640,000 | 600,000 | 2.0 | 182.5 |
| Total | 10,200,000 | 1,610,000 | 1,830,000 | 1,720,000 | 5.9 | 61.5 |
Refrigerated: 3,600,000 / 160,000 = 22.5 turns, and 365 / 22.5 = 16.2 days. Dry grocery: 5,400,000 / 960,000 = 5.625 turns, shown as 5.6, and 64.9 days. Nonfood: 1,200,000 / 600,000 = 2.0 turns, 182.5 days.
The total row sums the columns and recomputes the ratio from the totals: 10,200,000 / 1,720,000 = 5.93 turns, and 365 / 5.93 = 61.5 days. Never average the three turnover figures: the simple average is 10.0 turns, because it gives refrigerated's small inventory the same weight as dry grocery's.
Total days of inventory equal the COGS-weighted average of the category days:
(3,600,000 × 16.2 + 5,400,000 × 64.9 + 1,200,000 × 182.5) / 10,200,000 = 61.5 days
In Excel, with days in column F, this cell must match the total days:
=SUMPRODUCT(B2:B4,F2:F4)/SUM(B2:B4)
It holds exactly because each category's days are its average inventory / COGS × 365, so the weighted sum is total average inventory / total COGS × 365. Then tie the inputs: opening inventory of $1,610,000 and closing inventory of $1,830,000 must equal the inventory lines on the opening and closing balance sheets and the inventory valuation report, and $10,200,000 must equal cost of goods sold in the income statement.
Days of inventory, also called days inventory outstanding (DIO), is turnover turned upside down: 5.93 turns a year is 61.5 days of cost of sales sitting in the warehouse. Days are easier to act on, because they compare directly with supplier lead times, shelf life and payment terms. DIO is one of the three legs of the cash conversion cycle, DSO + DIO − DPO; the payables leg is in days payable outstanding.
Weeks of cover is the forward-looking version: inventory divided by expected, not past, cost of sales.
It depends on the category, which is why one company figure says little. In the example, refrigerated product turns 22.5 times and nonfood twice. Nonfood is 12% of cost of goods sold but holds 35% of the inventory: $600,000 of $1,720,000. Moving nonfood from 2.0 to 3.0 turns would cut its average inventory to $400,000 and release $200,000 of cash, more than any change refrigerated could make.
For outside reference, Sysco's fiscal 2026 Form 10-K reports cost of sales of $68,914 million and inventories of $5,053 million and $5,338 million at the start and end of the year: 68,914 / 5,195.5 = 13.3 turns, or 27.4 days on its 52-week year. The Census Bureau's Monthly Wholesale Trade report for July 2026 gives an inventories/sales ratio of 0.73 for grocery merchant wholesalers and 1.20 for all merchant wholesalers. Those ratios are inventory over one month's sales at selling prices, so they are not comparable with a COGS-based turnover without adjusting for margin.
Category turnover is the start; the slow inventory sits in individual SKUs and sites. Covirage computes turnover and days of inventory by category, site and SKU from your uploaded inventory and sales files, checks the totals against the inventory valuation, and lists the slow lines. The deterministic tools do every calculation; the external AI model explains the result and never does the arithmetic. See Covirage for distributors, inventory aging by site for which inventory is getting old (the short definition is under inventory aging), the product tail for the slow lines behind a low turnover, and sales KPIs for wholesale distributors for where turnover sits among them. For the balance all three legs sit in, see working capital.
It depends on the product. Fresh food turns many times a month; industrial spares may turn once or twice a year. Compare each category with its own history and with peers selling similar goods, not a single company-wide target.
Usually, because less cash is tied up in inventory and less inventory ages. But very high turnover can mean too little inventory, causing stockouts and lost sales. Read it together with fill rate or lost lines.
Some analysts use sales / average inventory, but that mixes selling prices with inventory at cost and overstates turnover. Use cost of goods sold where available; if you must use sales, say so and use it consistently.
They are the same information inverted. Turnover counts how many times inventory is replaced in a period; days inventory outstanding counts how many days of cost of sales the inventory covers: 365 divided by turnover.