Inventory Turnover, Days Sales of Inventory (DSI), and Cash Conversion Cycle

How inventory, receivables, and payables govern working-capital cash

Inventory Turnover divides annual Cost of Goods Sold (COGS) — never retail revenue! — by Average Inventory ((BeginningInv + EndingInv) / 2) to show how many times stock turns over per year.

Days Sales of Inventory DSI = 365 / Turnover converts turns into days on the shelf. Adding Days Sales Outstanding (DSO, customer collection days) and subtracting Days Payable Outstanding (DPO, supplier credit days) yields the Cash Conversion Cycle CCC = DSI + DSO - DPO.

Inventory Turnover, DSI, and CCC formulas

Bind Average Inventory inside LET to compute Turnover, DSI, or CCC in one auditable formula.

=LET(avgInv, (B2 + C2) / 2, IF(avgInv=0, "No average inventory", ROUND(A2 / avgInv, 2)))

Full Cash Conversion Cycle (DSI + DSO - DPO)

A negative CCC indicates that this measured cash timing cycle finishes before the supplier-payment interval; it is not by itself proof of financial health.

=LET(avgInv, (B2 + C2) / 2, dsi, 365 / (A2 / avgInv), ROUND(dsi + D2 - E2, 1))

Inputs and interpretation

This example uses annual COGS and a 365-day convention. Use consistent periods and definitions for DSO and DPO. Average inventory and COGS must be positive for the DSI/CCC formulas shown. The average of beginning and ending inventory may poorly represent a seasonal business; more frequent observations can improve the average.

Further reading

• Microsoft Support — LET function