What Is Inventory Turnover?
Stock sitting on a shelf is cash you have already spent.
Inventory turnover is how many times a business works through its stock over a period. You divide the cost of goods sold by the average value of stock held, valued at cost. Indian kitchens read it monthly rather than yearly, because food will not wait twelve months to be counted, while stock that keeps can be read over a quarter or a year.
Retail usually runs the same sum over a longer period, since most shelf goods are not racing an expiry date.
How to Work It Out
Inventory turnover = cost of goods sold ÷ average stock value
Here is what goes into it, and the catch hiding in each one.
- Cost of goods sold: what you used or sold in the period, not what you bought. If you do not already hold that figure, it is opening stock plus purchases minus closing stock, which also sweeps in wastage and staff meals. For a kitchen it is the rupee value behind your food cost percentage
- Average stock value: opening stock plus closing stock, divided by two, both at cost rather than at selling price
- The period: a month for perishables, a quarter or a year for goods that keep
Value the stock the same way at both ends of the period. Switch costing method midway, say from FIFO to weighted average, and the ratio can move without anything real having changed.
Turnover vs Days of Stock
Two ways of saying the same thing. Most owners find days of stock easier to act on, since it maps onto the next order.
| Aspect | Turnover | Days of stock |
|---|---|---|
| Answers | How often stock moves | How long stock sits |
| Reads as | 6 turns a month | 5 days of stock |
| Formula | Cost ÷ average stock | Period ÷ turnover |
| Good for | Comparing months | Planning the next order |
| Rises when | Stock moves faster | Stock moves slower |
The two move in opposite directions: more turns means fewer days.
Inventory Turnover Example
Take a thali restaurant in Solapur, Maharashtra, closing its books for April.
| Item | Amount |
|---|---|
| Opening stock, 1 April | Rs.96,400 |
| Closing stock, 30 April | Rs.83,600 |
| Average stock | Rs.90,000 |
| Food cost for April | Rs.5,40,000 |
Note: this is an invented example for illustration only. The figures show the method, not a real outlet.
Rs.5,40,000 divided by Rs.90,000 gives 6 turns in April. Thirty days divided by six gives 5 days of stock. Divide by the days in the period you measured, not by 365 out of habit.
What the Direction Is Telling You
A number on its own says nothing. The reading comes from the direction it moves.
Turnover falling month on month usually means stock is building faster than it sells, tying cash into raw material inventory that may spoil, or go out of season, before it earns anything, and that slow money is what the ratio exists to find. Rising sharply is not automatically good, because thin stock is how outlets run out mid-shift.
Resist the benchmarks you will find online. Most come from American operators on buying cycles nothing like a kitchen ordering paneer twice a week. Your own outlet is the fairer comparison, month on month and against the same month last year.
Most of these figures you must hold anyway: section 35 of the CGST Act requires a true and correct account of stock of goods from every registered person, though Rule 56(2) excuses composition taxpayers.
A stock inventory template is enough to start, and this piece on how to reduce food cost covers what to do once the number starts moving.
Know the Stock Behind the Number
The arithmetic is easy. Getting trustworthy figures into it is the work.
For restaurants, Petpooja POSS runs inventory on item-wise auto deduction and reports day-end inventory consumption, so that figure is measured off the billing rather than remembered at month end. Low-stock alerts catch items thinning out before a shift exposes them.
For retail businesses, Petpooja Invoice holds a centralised inventory with real-time stock tracking, so both ends of the count are already there when you want them.
Count the shelves on the first and last of the month, pull the consumption report for the month between, and the ratio falls out in a minute. A food cost calculator will sanity-check the consumption side.
Frequently Asked Questions
There is no single right figure; it depends on how often you buy. A kitchen taking fresh deliveries every second day will land far higher than a bar working through bottled stock.
Consumption, every time, and it is the figure we see owners get wrong most often. Purchases count what arrived, not what you actually used, so the ratio follows your stock level instead of your trade: up in a month you build stock, down in a month you run it down.
Yes, and for perishables it is often more useful. Run it on paneer or fish alone and a problem the kitchen-wide average was smoothing over shows up straight away.
Check the stock valuation at both ends first. A different costing method, or a count taken before a large delivery rather than after, moves the ratio without any change in how the kitchen ran.
Monthly is enough for most kitchens, tied to the day you count stock anyway. Weekly only pays off on fast-moving perishables, where being two days out costs real money.
