Calculate inventory turnover ratio, days on hand, and carrying cost with ABC analysis and reorder point suggestions.
Inventory ties up cash until it is sold. This calculator relates cost of goods sold to average inventory, reporting both annual inventory turnover and the equivalent days on hand. It can also estimate annual carrying cost, rank individual items for ABC analysis, and suggest reorder points from demand, lead time, and safety stock. The most common mistake is entering sales revenue as cost of goods sold. That mixes selling prices with inventory measured at cost and makes the resulting turnover ratio difficult to interpret or compare.
A concrete input and expected output from the current implementation.
Input
Cost of goods sold: $10,000 per year; beginning inventory: $2,000; ending inventory: $2,000; annual carrying-cost rate: 20%.
Expected output
Inventory turnover: 5 times per year; days on hand: 73 days; estimated annual carrying cost: $400.
Average inventory is $2,000. Dividing $10,000 by $2,000 gives 5 turns, 365 divided by 5 gives 73 days, and 20% of $2,000 is $400.
The turnover section averages beginning and ending inventory, then divides cost of goods sold by that average. It converts the ratio to days on hand by dividing 365 by turnover. For carrying cost, it applies the annual carrying-cost percentage to average inventory value. Keeping both inventory and cost of goods sold on the same cost basis is essential.
For ABC analysis, each SKU's annual unit demand is multiplied by its unit cost to produce annual consumption value, and items are ranked by their contribution to total value. The displayed A, B, and C groups depend on the tool's category cutoffs. A reorder point represents expected demand during lead time plus any entered safety stock.
Use cost of goods sold for the standard turnover ratio. Inventory is measured at cost, so revenue in the numerator mixes a selling-price measure with a cost-based denominator and can overstate turnover. If only revenue is available, the calculator cannot produce a directly comparable standard inventory turnover ratio.
No. Higher turnover can indicate efficient purchasing and strong sales, but it can also reflect inventory levels that are too low, causing stockouts or rushed replenishment. Interpret turnover alongside service levels, lost sales, lead-time variability, margins, and the company's normal seasonality rather than treating the largest ratio as automatically best.
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