How inventory turnover works
Inventory turnover is 365 divided by days inventory outstanding. A DIO of 60 days is 6.08 turns a year on a 365 day year. That 60 also sits in the operating cycle: 45 of receivables plus 60 of stock is 105 days.
Cash conversion cycle
75 days
Inventory and receivables hold cash for 105 days. Payables give 30 days of that back.
- Operating cycle (DSO + DIO)
- 105 days
- Days payable outstanding
- 30 days
- Cash conversion cycle
- 75 days
How long customers take to pay. Receivables over daily sales.
How long stock sits. Inventory over daily cost of goods.
How long the firm takes to pay suppliers. A larger figure shortens the cycle.
On this page
Next on Models and deals
Days payable outstandingIn short
- Turnover is . DIO 60 is 6.08 turns. DIO is the input on this calculator; the 365 is the year convention.
- That 60 plus DSO of 45 is a 105 day operating cycle. CCC is 75 days after DPO of 30.
- DIO 20 is 18.25 turns. The operating cycle is then 50 days with DSO 30, and CCC is minus 50 after DPO 100.
- DIO 40 is 9.125 turns. Equal clocks of 40 print an 80 day operating cycle and a 40 day CCC.
- Some sheets use 360. exactly. Say which year you used. How the cash conversion cycle works owns the days. This page owns the turns.
Turns are days written the other way up
Inventory turnover asks how many times a year the stock account turns over:
DIO of 60 days is , which prints as 6.08 turns. The cash conversion cycle calculator on this page takes DIO as an input. It does not compute DIO from inventory and cost of goods. Type the days, then invert.
That 60 plus DSO of 45 is a 105 day operating cycle. Minus DPO of 30 is a 75 day cash conversion cycle. How the cash conversion cycle works owns those sums. This page owns 365 over DIO.
Inventory turnover against DIO is the same clock as a turns figure and as a wait.
A faster turn is a shorter wait
DIO 20 is turns. The stock sits a third as long as 60 days, so it turns about three times as often. With DSO 30 the operating cycle is 50 days. DPO 100 then makes CCC minus 50 days.
A grocer running 18.25 turns is not a manufacturer running 6.08 turns. Compare turns inside a sector, or the comparison is the business model.
Equal clocks, 9.125 turns
DIO 40 is turns. DSO 40, DPO 40. Operating cycle 80 days. CCC 40 days. The turns figure did not become 365/40 because the other clocks matched. It became 9.125 because DIO was 40.
365 or 360
Some ledgers use a 360 day year, which makes exactly. This page uses 365, so 60 days is 6.08, not 6. Mixing 365 on one firm and 360 on the next is a fake ranking. Name the year and keep it.
DIO itself is usually inventory over daily cost of goods, not over daily sales. Using sales in the denominator mixes a selling price into a stock of cost, and the turns will not match the days on this calculator.
Turns are not a cash balance
6.08 turns on a growing book still consumes cash, because the same days sit on a larger cost of goods. Cutting DIO into stockouts can cost more than the cash it frees. The working capital dollar figure is the stock identity. This is the days identity inverted.
What this page is not doing
It is not a COGS engine, not a 360 day table, and not a target of 6.08 turns. The three sheets are DIO 60 (6.08 turns, operating cycle 105, CCC 75), DIO 20 (18.25 turns, operating cycle 50, CCC minus 50), and DIO 40 (9.125 turns, operating cycle 80, CCC 40). This is educational material, not financial advice.
Worked examples
DIO 60, 6.08 turns
DSO 45, DIO 60, DPO 30. What is inventory turnover on a 365 day year, and what is the operating cycle?
- Turnover: , which prints as 6.08 turns.
- Operating cycle: days.
- CCC: days.
Inventory turnover is 6.08 times a year. The operating cycle is 105 days. CCC is 75 days.
DIO 20, 18.25 turns
DSO 30, DIO 20, DPO 100. What is inventory turnover?
- Turnover: turns.
- Operating cycle: 50 days. CCC: minus 50 days.
Inventory turnover is 18.25 times a year. The operating cycle is 50 days. CCC is minus 50 days.
DIO 40, 9.125 turns
DSO 40, DIO 40, DPO 40. What is inventory turnover?
- Turnover: turns.
- Operating cycle: 80 days. CCC: 40 days.
Inventory turnover is 9.125 times a year. The operating cycle is 80 days. CCC is 40 days.
Common questions
Why 365 and not 360?
This page uses 365 so a 60 day DIO is 6.08 turns, not 6. A 360 day year is a different convention. Name which one you used.
Is a higher turnover always better?
It is a shorter wait. It can also be a stockout. Compare inside a sector.
Does this calculator compute DIO from inventory?
No. DIO is an input. Invert it after you have the days. This is educational material, not financial advice.
Keep reading
This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.