Business Math Essentials · Interview Question
A retailer has $30M in inventory and COGS of $120M. What are inventory turns and days of inventory?
How to answer
Inventory turns = COGS / Average Inventory = $120M / $30M = 4.0 turns per year. Days of inventory = 365 / Inventory Turns = 365 / 4 = 91.25 days. This means the retailer holds about 3 months of inventory on average. For a general retailer, 4 turns is below average (typical retail is 6-8 turns). This suggests potential overstocking, slow-moving SKUs, or poor demand planning. Each additional turn would free up working capital: going from 4 to 5 turns would reduce inventory from $30M to $24M, freeing $6M in cash.
Key idea: Turns = COGS / Inventory; Days = 365 / Turns.
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