Learn · Explainer

Inventory and inventory turnover

Goods on hand, cost of sales, and how many days of sales sit in stock at each company that reports inventory.

The formulas

Inventory turnover = cost of sales ÷ inventory
Days in inventory = 365 ÷ inventory turnover

Inventory is a current asset on the balance sheet; the SEC's balance sheet rules ask companies to show it on its own line and to state the main classes, such as finished goods and raw materials, on the balance sheet or in a note. Cost of sales, from the income statement, is used rather than revenue because inventory is carried at cost.

What the figures tell you

Grocers and big-box retailers turn inventory many times a year. Makers of aircraft, chips or heavy equipment hold parts and partly built products for months. In this table, Microsoft has the highest turnover, 76.14, and Eli Lilly the lowest, 0.80, about 454 days.

Changes within a company are often more telling than comparisons between companies. Inventory growing faster than sales ties up cash, shows up as a drag on operating cash flow, and can lead to write-downs if the goods have to be sold below cost. The notes describe how inventory is valued (FIFO, LIFO or average cost) and any reserves for obsolete stock. Working capital puts inventory alongside the other current items.

Every company that reports inventory

Inventory from each balance sheet at the latest fiscal year end and cost of sales for that year, from each 10-K, sorted by turnover. Days in inventory is 365 divided by turnover. Using year-end inventory instead of the average over the year makes both figures approximate.

More in Learn and Tools · Methodology & Disclosures explains where every number comes from.