The inventory turnover ratio is the number of times your average stock is sold and replaced in a period. Enter cost of goods sold and opening and closing inventory in Saudi riyals, and turnover, days of inventory and average inventory appear together; each of the six KPIs has its own card that opens its inputs. The rings on the cards fill as their inputs are complete, so one screen shows where your stock stands.
How to calculate the inventory turnover ratio
Add opening and closing inventory and divide by 2 for average inventory, then divide cost of goods sold for the same period by that average. Use cost, not selling price: stock is carried in the books at cost, and dividing sales at retail by stock at cost inflates turnover by your margin.
Turnover = COGS ÷ ((Opening + Closing) ÷ 2) · DIO = Days ÷ Turnover
If the opening and closing balances do not reflect the months in between, as with a Saudi store that loads up before Ramadan and the back-to-school season, switch on advanced mode and enter each month-end balance so the average uses all of them.
Days of inventory and average inventory
Days inventory outstanding (DIO) is how many days goods stay in the warehouse before they sell, found by dividing the days in the period by turnover. Every extra day is cash frozen on the shelf, so finance teams read it alongside customer collection days and supplier payment days to see how long the business funds its stock out of its own pocket.
Sell-through and fill rate
Sell-through is the share of an item sold out of what was available for sale in the period: opening units plus units received. Fashion and electronics retailers use it to decide whether to reorder or mark down before the season ends.
Fill rate is the share of customer demand shipped straight from stock. When customers order 1,250 units and 1,175 ship, the rate is 94.0%, and the remaining 75 units are sales delayed or lost because the item was not on the shelf.
Weeks of supply
Weeks of supply answers the buyer's question: how many weeks will current stock last at the current rate of sale? 900 units on hand selling 150 a week cover 6.0 weeks. If the supplier's lead time is longer than the cover, the order is already late.
How to read the results
There is no single right number for every business. A grocery or restaurant turns stock many times a year because it spoils; a furniture or spare-parts store turns it a few times. Compare a KPI with its own history and across your items and branches before you hold it against published sector figures, most of which come from markets other than Saudi Arabia, with different selling seasons. Very high turnover with a low fill rate means empty shelves; low turnover with long weeks of supply means stock that is not moving.
Common mistakes in inventory KPIs
- Dividing sales at selling price by stock valued at cost.
- Taking average inventory from the closing balance alone in a seasonal business.
- Comparing a quarter's turnover with a full year's without putting them on the same period.
- Calculating turnover for the whole business and hiding slow items behind fast ones.
What to do after the result
Run the KPIs for your twenty highest-value items before the business as a whole, since they tend to drive the figure. Download the Excel file to keep with the monthly report: inputs sit in cells and each KPI is a formula, so next month you change the numbers and the sheet updates.
When the number arrives a month late
Turnover worked out from the month-end count flags slow stock after its cash has been tied up for a month, and flags stock-outs after the sale is gone. At Microtec we offer stores and warehouses in the Kingdom an ERP accounting system, so cost of sales, item balances and sales sit in one place instead of three spreadsheets. Start the trial with one branch's items.