# Inventory turns, days on hand and GMROI > How to calculate and read inventory turns, days on hand, the Census inventory-to-sales ratio and GMROI, with worked examples and the ways each misleads. Source: https://docs.lumina-erp.com/distribution/inventory-turns-and-gmroi/ **In short.** Inventory turns tell you how many times a year your average inventory sells through at cost, and GMROI tells you how many dollars of gross margin each dollar of that inventory earns. Read them together, by segment and with the averaging method stated, or a good total can hide a warehouse full of dead stock. Inventory is usually the largest asset a distributor owns, and these metrics tell you whether it is working. Turns and days on hand measure how quickly stock sells through. GMROI measures how much gross margin that stock earns. The Census inventory-to-sales ratio gives you an outside reference point for the sector as a whole. ## At a glance | Metric | Answers | Formula | Higher is | |---|---|---|---| | Inventory turns | How many times a year does average inventory sell through? | COGS ÷ average inventory at cost | Usually better | | Days on hand | How many days of cost of sales are sitting on the shelf? | Days in period ÷ turns | Usually worse | | Inventory-to-sales ratio | How many months of sales are held as inventory? | Inventory ÷ monthly sales | Usually worse | | GMROI | How many margin dollars does each inventory dollar earn? | Gross margin $ ÷ average inventory at cost | Better | ## Inventory turns ### What turns measure Turns count how many times your average inventory investment was sold and replaced during a period, usually a year. It is a speed measure. It says nothing on its own about whether that speed was profitable. ### Turns formula **Inventory turns:** `Cost of goods sold for the period ÷ average inventory at cost` Where: - **Cost of goods sold (COGS)** is the cost of what you sold in the period, from the income statement. - **Average inventory at cost** is the average of inventory balances across the period, valued at cost, not at selling price. Both sides must be at cost. Dividing sales (at selling price) by inventory (at cost) inflates turns by the markup. ### Turns worked example With invented round numbers, a distributor has annual COGS of $12,000,000. Inventory at cost was $2,600,000 at the start of the year and $2,200,000 at the end. - Average inventory: ($2,600,000 + $2,200,000) ÷ 2 = $2,400,000 - Turns: $12,000,000 ÷ $2,400,000 = **5.0 turns** ### Reading turns Five turns means the average dollar of inventory sold through five times in the year, or about every 73 days. Rising turns with steady service levels usually mean you are carrying less cash on the shelf for the same business. Rising turns with falling fill rate can mean you cut too deep and are now losing orders. ## Days on hand ### What days on hand measures Days on hand (also called days inventory outstanding, DIO or days of supply) expresses the same idea as turns in days. Many people find days easier to reason about: "we hold about 10 weeks of stock" is more concrete than "we turn five times." ### Days on hand formula **Days on hand:** `Days in the period ÷ inventory turns` Equivalently: average inventory at cost ÷ (COGS ÷ days in the period). ### Days on hand worked example In the same invented example, 365 ÷ 5.0 = **73 days on hand**. ### Reading days on hand Compare days on hand to supplier lead times and review cycles. If a supplier delivers in 10 days and you review weekly, holding 120 days of that supplier's items needs a reason (a price buy, a minimum order, a seasonal build). Holding fewer days than the lead time means you are relying on luck or on stock already on order. _Interactive calculator available on the web page._ ## The Census inventory-to-sales ratio ### What the ratio measures The Census Bureau publishes a monthly inventory-to-sales ratio for merchant wholesalers (excluding manufacturers' sales branches and offices). It divides end-of-month inventories by that month's sales, so it reads as "months of sales held in inventory." It is the closest thing to a public, sector-wide benchmark. ### The current value In the Monthly Wholesale Trade report for July 2026 (released 2026-09-10, retrieved 2026-09-28), the seasonally adjusted ratio was **1.20**, down from 1.28 in July 2025. FRED carries the same figure as series WHLSLRIRSA. The ratio differs widely by the kind of goods. From the same July 2026 release: | Merchant wholesalers of | Inventory-to-sales ratio, July 2026 | |---|---| | Durable goods (all) | 1.48 | | Nondurable goods (all) | 0.91 | | Machinery, equipment and supplies | 2.66 | | Hardware, plumbing and heating equipment | 2.06 | | Apparel | 1.98 | | Electrical and electronic goods | 0.90 | | Drugs | 0.94 | | Groceries | 0.73 | | Petroleum | 0.36 | ### Reading the ratio Divide 12 by the ratio to get a rough annual sales-to-inventory rate: 12 ÷ 1.20 is about 10. This rate differs from inventory turns. Census sales are at selling price and inventories are at cost, so the ratio flatters turns by roughly the markup. With a gross margin near 20%, a sales-to-inventory rate of 10 corresponds to cost-based turns closer to 8. Use the Census ratio for direction and for comparing sectors, not as a target for your own turns. ## What "good" turns look like There is no single good number. The table above shows the spread: a grocery wholesaler holds well under a month of sales, a machinery distributor well over two months. Within a sector, the mix of stocked versus special-order items, the number of branches and whether you promise same-day availability all move the number. We have not found a free, primary public source that publishes cost-based inventory turns by distribution sector. Trade associations and paid benchmarking studies do, but we cannot reproduce their figures here. The most honest benchmark available to you is your own history, split by product line and location, and the Census ratios above for direction. ## GMROI ### What GMROI measures Gross margin return on inventory investment (GMROI) tells you how many dollars of gross margin you earned for every dollar of inventory you carried at cost. It combines speed (turns) and margin into one figure, which is why buyers and category managers use it to compare product lines that behave very differently. ### GMROI formula **GMROI:** `Gross margin dollars for the period ÷ average inventory at cost` Gross margin dollars are sales minus cost of goods sold for the same period. Average inventory at cost is the same figure used for turns. GMROI is also turns multiplied by the ratio of gross margin to COGS, which shows why a slow line with fat margins can match a fast line with thin ones. ### GMROI worked example The same invented distributor had sales of $15,600,000 and COGS of $12,000,000. - Gross margin: $15,600,000 minus $12,000,000 = $3,600,000 - GMROI: $3,600,000 ÷ $2,400,000 = **1.5** Each dollar of average inventory earned $1.50 of gross margin over the year. Now compare two invented product lines, each with $200,000 of average inventory: | Line | Annual COGS | Gross margin $ | Turns | GMROI | |---|---|---|---|---| | Fast consumables | $1,600,000 | $240,000 | 8.0 | 1.2 | | Slow specialty parts | $500,000 | $300,000 | 2.5 | 1.5 | The specialty line turns less than a third as fast and still earns more margin per inventory dollar. ### Reading GMROI A GMROI above 1.0 means the line earned more in gross margin than it tied up in inventory over the year. It does not mean the line was profitable, because gross margin still has to cover warehouse, delivery, selling and administrative costs. Use GMROI to rank lines, suppliers or categories against each other, then look at operating costs before cutting or expanding one. _Interactive calculator available on the web page._ ## How these numbers go wrong ### The averaging method changes the answer A two-point average (start plus end, divided by two) is easy but fragile. If you build inventory for a season and sell it down by year end, both balances look lean and the average understates what you carried. A 12- or 13-point average of month-end balances is more representative. Whatever you use, use the same method every period and state it next to the number. :::tip If turns jump in the month after a physical inventory or a year-end write-down, check the averaging before celebrating. The shelf may not have changed at all. ::: ### Cost versus selling price Turns and GMROI must use inventory at cost. Mixing sales at selling price with inventory at cost inflates turns by the markup. Mixing cost methods (standard cost for one warehouse, average cost for another, last cost on a report) makes comparisons meaningless. ### Consignment, drop-ship and non-stock items Drop-shipped and special-order items add COGS without ever sitting in your inventory. Include them and turns look better than your warehouse performs. Consigned stock you hold but do not own may be on the shelf but not on the balance sheet. Decide what belongs in the numerator and the denominator, and apply that rule consistently. For stocking decisions, measure turns on stocked items only. ### Dead stock hiding behind a good average A company-wide 5.0 turns can be made of fast items turning 12 times and a long tail that has not sold in two years. The average looks healthy while cash sits in obsolete stock. Always break turns and GMROI down by item class (see [ABC analysis](/distribution/abc-analysis-and-cycle-counting/)), and track the value of items with no sales in the last 12 months separately. ### New warehouses and growth Opening a branch means stocking it before it sells much, so turns fall for months. Fast-growing companies also buy ahead of demand. Neither is a failure of inventory management by itself. Compare like with like: same-store turns, or turns excluding locations open less than a year. ### Timing and write-downs A large write-down or reserve for obsolete stock lowers inventory at cost and raises turns and GMROI immediately, without any change on the shelf. Note write-downs next to the metric when you report it. ## Putting the numbers to work 1. Pick one averaging method (we suggest the monthly average) and one cost basis, write them down and stick to them. 2. Report turns, days on hand and GMROI by product line, supplier and location as well as in total. 3. Pull out non-stock, drop-ship and consigned items before judging stocking performance. 4. Put the value of slow and dead stock next to the turns number every time. 5. Use the Census ratios to understand where your sector sits, and your own trend to decide whether you are improving. These metrics feed directly into cash: days on hand is the DIO in [the cash conversion cycle](/distribution/cash-conversion-cycle/). ## Sources - [Monthly Wholesale Trade Report, July 2026 (U.S. Census Bureau)](https://www.census.gov/wholesale/current/index.html) - [Monthly Wholesale Trade program home (U.S. Census Bureau)](https://www.census.gov/wholesale/index.html) - [Merchant Wholesalers: Inventories to Sales Ratio, WHLSLRIRSA (FRED, Federal Reserve Bank of St. Louis)](https://fred.stlouisfed.org/series/WHLSLRIRSA) - [A Beginners' Guide to Financial Statements (U.S. Securities and Exchange Commission)](https://www.sec.gov/about/reports-publications/beginners-guide-financial-statements) --- Epicor, Prophet 21, P21 and DynaChange are trademarks or registered trademarks of Epicor Software Corporation registered in the United States and other countries. Kinetic is a trademark of Epicor Software Corporation. 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