Free tool
Average inventory calculator
Enter your inventory balances to get average inventory, and add cost of goods sold to see turnover and days of inventory.
Your inventory balances
Average inventory
$300,000
- Inventory turnover
- 4×
- Days of inventory
- 91.25
Turnover divides what you sold by the average; days of inventory divides the period by turnover.
The formula
Average inventory = (beginning inventory + ending inventory) ÷ 2
Average inventory (multi-point) = sum of period-end balances ÷ number of balances
Inventory turnover = cost of goods sold ÷ average inventory
Days of inventory = days in period ÷ inventory turnover
- Beginning inventory
- Inventory at the start of the period.
- Ending inventory
- Inventory at the end of the period.
- Period-end balances
- Inventory at each month or quarter end, including the opening balance. Thirteen balances cover a year of month ends.
- Cost of goods sold
- What the goods you sold cost you over the same period. Use units sold when the balances are in units.
- Days in period
- 365 for a year, 90 or so for a quarter.
Worked example
- A store starts the year with $280,000 of stock at cost and ends it with $320,000. Average inventory is ($280,000 + $320,000) ÷ 2 = $300,000.
- Cost of goods sold for the year was $1,200,000, so turnover is $1,200,000 ÷ $300,000 = 4, and days of inventory is 365 ÷ 4 = 91.25 days.
- Counted at five points in the year instead ($280,000, $310,000, $350,000, $300,000, $320,000), the balances sum to $1,560,000 and the average is $1,560,000 ÷ 5 = $312,000.
- That moves turnover to 3.85 and days of inventory to 94.9: the mid-year peak was invisible to the beginning-and-ending method.
When it applies
- Businesses whose stock level is about the same all year, where the start and end of the period are representative.
- Turnover and days-of-inventory reporting, when both balances and cost of goods sold are at cost.
When it breaks down
- Seasonal businesses. Two year-end balances miss the peak in between, so the two-point average understates the stock you actually carried. Use monthly balances.
- Periods with a large one-off purchase or write-down just before a balance date, which moves the average more than the business did.
Common mistakes
Using only year-end balances in a seasonal business
If stock peaks mid-year, the average of two year-ends leaves the peak out. Monthly balances show the difference; this calculator shows both.
Mixing retail and cost
Balances at retail price with cost of goods sold at cost inflate the average and shrink turnover. Keep both on the same basis.
Confusing it with weighted average costing
Average inventory is the typical stock you held over time. Weighted average cost is a way of valuing each unit. They answer different questions.
Questions
How is average inventory calculated?
Add the beginning and ending inventory for the period and divide by two. For a more accurate figure, add every month-end balance and divide by the number of balances.
Why is average inventory divided by 2?
Because the simple method averages two numbers: the balance at the start and the balance at the end. With more balances you divide by how many there are.
Is average inventory a current asset?
Inventory is a current asset, reported at its balance on the balance-sheet date. Average inventory is a calculated figure used in ratios such as turnover; it is not a separate line in the accounts.
What is average inventory at cost?
It is average inventory with every balance valued at what the stock cost you rather than its selling price. It is the version to divide into cost of goods sold for turnover.
Is weighted average inventory the same as FIFO?
No. Weighted average and FIFO are two ways of valuing the units you sell and the units left. Average inventory, the figure this calculator produces, works with whichever valuation your balances already use.
Related
Published by Skuvelo. Results are estimates computed from the figures you enter, not a reading of your own sales or stock.
A calculator answers once. Skuvelo keeps answering.
This tool computes one number from what you type. Skuvelo computes it continuously, for every SKU, from your own sales and stock.