From cost of goods sold and opening and closing inventory, get the inventory turnover ratio and how many days of sales the stock represents.
Inventory turnover compares cost of goods sold with the average inventory held over the same period: beginning plus ending inventory, divided by two. The ratio states how many times the stock effectively sold through and was replaced. Days sales in inventory turns the figure around — 365 divided by the ratio — showing roughly how long a typical item spends in stock. Healthy ranges differ sharply by trade; perishable and fast-moving goods turn far faster than durable goods.
What is a good inventory turnover ratio? It depends on the trade. Many retailers sit between 5 and 10 turns a year, grocers turn far faster, and slow durable goods turn more slowly. The trend over time matters more than a single figure.
Why use average inventory? Stock levels swing across a period with deliveries and seasonal peaks. Averaging the opening and closing values gives a fairer denominator than either end on its own.
What does days sales in inventory show? How many days of sales the average stock represents — 365 divided by the turnover ratio. Fewer days means cash spends less time tied up in stock.