Inventory Turns & Days on Hand
Turns and days on hand are the same fact stated two ways, and both are easy to calculate wrongly. This one also shows the number that gets a finance director's attention: how much cash comes back if you improve by one turn.
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Cost of goods, not revenue. Using revenue is the single most common error here and inflates turns by your entire gross margin.
The two formulas
Four turns means you sell through your entire stock four times a year, and hold about 91 days of cover. They are the same statement; use turns when talking to finance and days when talking to the warehouse floor, because that is the unit each group thinks in.
The number that changes the conversation
Improving by one turn releases cash equal to average inventory × (1 − turns ÷ (turns+1)) — shown above as “cash per extra turn”. That is a one-time release of working capital, and it lands directly on the balance sheet. It is a far more persuasive way to fund a planning project than any service-level argument, because it is measured in rupees rather than percentages.
What good looks like
| Sector | Typical turns | Days on hand |
|---|---|---|
| Automotive / equipment spare parts | 2–4 | 90–180 |
| Industrial / MRO | 3–5 | 73–122 |
| FMCG distribution | 8–14 | 26–46 |
| Pharma distribution | 6–10 | 37–61 |
| E-commerce fulfilment | 6–12 | 30–61 |
Spare parts sit low for a structural reason: you are deliberately holding slow-moving items to protect machine uptime. A spare-parts operation turning at 10 is almost certainly stocking out constantly. Compare against your own trend and your own sector, never across sectors.
Common mistakes
- Using revenue instead of COGS. Inflates turns by the whole gross margin. At 30% margin, a genuine 3.5 turns reports as 5.0 — and nobody notices until a benchmark comparison goes badly.
- Using year-end stock as the average. Most businesses run stock down at year end. A single closing snapshot flatters the number; a 12-month average tells the truth.
- Chasing turns without watching service. Turns improve beautifully when you stop stocking things. Always read turns alongside fill rate — either one alone can be gamed, the pair cannot.
- Averaging turns across classes. A blended figure hides everything. A items might turn 12 times while the C tail turns 0.4, and the tail is where the cash is trapped — see the ABC–XYZ classifier.
- Ignoring ageing stock. Stock older than twelve months is usually not inventory, it is a write-off waiting to be recognised. It suppresses turns and, worse, it is a real loss already incurred.
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