The formulas this calculator uses
How many times a year you sell through and replace your entire stock holding. Both figures are at cost — using revenue on top inflates the ratio by your margin and makes you look leaner than you are.
The same fact expressed in days: how long the average pound of stock sits on the shelf before a customer pays for it. Finance teams also call this days of inventory, inventory days or days sales of inventory (DSI) — same calculation.
Worked example
A distributor's P&L shows £4.2m cost of goods sold for the year. The balance sheet shows £1.1m stock at the start of the year and £1.0m at the end — an average of £1.05m:
Every pound this business puts into stock takes about three months to come back out. If a competitor runs the same catalogue at 6 turns (61 days), they're funding a third less stock to support the same sales — roughly £350,000 less cash tied up.
What a "good" number looks like
- Wholesale and distribution: commonly 4–8 turns a year (DIO roughly 45–90 days). Below 4, cash is usually piling up in slow lines; well above 8, check you're not running out of best-sellers to look efficient.
- The trend beats the benchmark. A ratio falling year on year means stock is growing faster than sales. That's the single most common early-warning sign of a dead-stock problem building.
- The average hides the story. A healthy 6× overall can be 20 turns on your top sellers and 0.5 turns on a long tail of dying lines. The company-level ratio tells you there's a problem; only a product-level view tells you where.
The honest bit: what this ratio can't tell you
Turnover and DIO are rear-view mirrors — they describe what your stock did, averaged across everything you sell. They can't tell you which products are the problem, whether next quarter's demand justifies today's stock, or what you should order next week with the budget you actually have.
Optimal Chain reads your sales history from a simple spreadsheet export and shows the same picture per product: months of coverage against a real demand forecast for every line you stock, so "4.2 years of stock" jumps off the screen instead of hiding in a company-wide average. Then it turns the diagnosis into decisions — what to order, from which supplier, within the budget you set.
Practical tips for using the result
- Use cost, not revenue, on both sides. Mixing a revenue numerator with a cost denominator is the most common spreadsheet mistake and flatters the ratio badly.
- Average the inventory properly. If your stock is seasonal, a year-end snapshot can be your seasonal low — averaging month-ends is fairer.
- Track it quarterly, per category. One annual company-wide number hides fast-moving trouble; a quarterly view per product category shows it while it's still cheap to fix.
- Pair it with a coverage view. Turnover says how fast stock moved historically; months-of-coverage against forecast demand says whether today's stock matches tomorrow's sales.