How is inventory turnover calculated?

Inventory turnover is cost of goods sold divided by average inventory value (at cost). It tells you how many times you sell and replace your stock in a period. Days inventory outstanding is simply 365 divided by turnover — the average number of days a unit sits before it sells.

GMROI (gross margin return on investment) is gross profit divided by the average inventory cost. It shows how many rands of gross profit each rand invested in stock generates. Above 1 means you sell stock for more than it cost to acquire; higher is better and reflects both margin and how fast stock turns.

What is the cash-to-cash cycle?

The cash-to-cash (cash conversion) cycle is days inventory outstanding plus days sales outstanding minus days payables outstanding. It measures how many days your cash is tied up between paying suppliers and collecting from customers. A shorter — even negative — cycle frees up working capital.

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Inventory Turnover & Cash-Flow

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