Inventory Turnover Ratio: A Worked Example for Seasonal Stock

Inventory turnover tells you how many times you sold the equivalent of your average stock during a period. It is useful when a busy December has filled the order book but cash is still tied up on the shelves. Start with the stock turnover ratio for the business, then look at individual products before changing a buying decision.

Calculate inventory turnover using costs from the same period

Divide cost of goods sold by average inventory valued at cost. A simple average is the opening stock value plus the closing stock value, divided by two. Use the same dates, products and valuation basis for both figures. The numerator is what the stock you sold cost the business. Putting sales revenue there would make a price increase look like faster stock movement. Shopify’s inventory turnover formula.

Take a 30-day November example. Opening stock cost £8,000 and closing stock cost £12,000. The cost of goods sold in those 30 days was £15,000.

• Average inventory = (£8,000 + £12,000) ÷ 2 = £10,000.
• Inventory turnover ratio = £15,000 ÷ £10,000 = 1.5 turns in November.
• Days in inventory = 30 ÷ 1.5 = 20 days for that period.

The period matters. A late-November pallet can inflate the closing balance even if it spent only two days on site. If receipts are lumpy, repeat the calculation with average daily closing stock values. Compare the same weeks across years and keep the averaging method consistent.

Find the SKU hiding behind the average

Suppose two gift sets each started with 100 saleable units, with no receipts, returns or stock adjustments in the month. The blue set sold 80 and has 20 left. The red set sold 20 and has 80 left. Across the pair you have sold half the available units, yet the next purchase decision is different for each colour.

A unit sell-through measure for this example is units sold ÷ (units sold + ending units). Blue is at 80% and red at 20%. For reports that include stock movements and returns, check the platform’s definition before comparing percentages. Shopify’s inventory report definitions.

Decide what to do before the selling window closes

If the blue set sold 80 units in 30 days and demand holds, its remaining 20 units cover about 7.5 days. Ask the supplier for the earliest date fresh stock will be ready to sell. A delivery in ten days misses that projected stockout. Use the stock reorder calculator to test a smaller, earlier delivery against your current reservations.

For the red set, check when the listing was buyable, whether the photo shows the correct colour and what it contributes per sale. If a missing image suppressed orders for a week, fix it before using a discount to clear stock. If the listing worked throughout and its seasonal window is closing, compare the contribution from a modest markdown with the cost of holding the remaining units. Record the decision against the SKU and review units remaining after the next week of trading.