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Inventory turnover shows how many times a business sells and replaces its stock in a period. A higher ratio means stock sells quickly, so less money is tied up in inventory; a low ratio can mean overstocking or slow-moving products.
Days inventory outstanding (DIO, also days sales of inventory) turns the ratio into days: how long, on average, an item sits in stock before it is sold.
| Cost of goods sold for the period | 600000 |
| Beginning inventory | 80000 |
| Ending inventory | 120000 |
| Days in the period | 365 |
| Inventory turnover (times) | 6 |
| Days inventory outstanding (days) | 60.83 |
| Average inventory | 100,000 |
Turnover 6 times; stock held 60.83 days.
Try this example →Divide cost of goods sold by average inventory. ₹6,00,000 ÷ ₹1,00,000 = 6 times a year.
365 ÷ inventory turnover. A turnover of 6 means stock is held about 61 days.
Usually, yes — but very high turnover can mean you hold too little stock and lose sales to stockouts.