Inventory turnover FAQ.
Twelve questions, twelve direct answers. Each links back to the calculator or atlas where the math lives.
What is a good inventory turnover ratio?
It depends on the industry. Grocery sits around 14x, apparel around 4x, jewelry around 1.5x. Compare against the median for the cohort, then against the top-quartile mark.
Should I use COGS or sales in the numerator?
COGS, for any external reporting. Sales-based turnover inflates by the gross margin and does not match published benchmarks.
How often should I recalculate?
Monthly for management, quarterly for the board, on a trailing-twelve-month basis for lenders.
How does inventory turnover affect bank covenants?
A turnover lift releases inventory cash, paying down revolver balances and lifting DSCR. The released cash can also lift the current ratio. See the covenant defence playbook.
What if my inventory is highly seasonal?
Use the twelve-month average inventory method rather than the two-point method. The two-point method distorts seasonal books by 30 percent or more.
What if my COGS is reported quarterly?
The calculator annualises automatically when a period less than 365 days is selected.
How do I treat consignment inventory?
Include in the denominator if title remains with the seller. Exclude if title has passed to the consignee under the contract.
What about intercompany inventory?
Eliminate at consolidation. Holding intercompany stock in the denominator inflates the denominator and depresses the ratio.
Does FIFO vs LIFO matter?
Yes, by a margin equal to the LIFO reserve. Convert LIFO to FIFO before comparing against external benchmarks.
How quickly can a low turnover be fixed?
Two cycles. A 4x ratio implies a 91-day cycle, so meaningful improvement lands in 4 to 6 months.
What if my industry is not in the atlas?
Pick the closest cohort and adjust expectations. The atlas covers the 16 most common retail, wholesale, and manufacturing cohorts.
Is the working-capital-freed number a guarantee?
No. It is the arithmetic upper bound assuming the lift holds for one full cycle without other working-capital changes. Treat as a planning anchor, not a forecast.