How do you calculate average inventory?
Add opening and closing inventory at cost and divide by two. This smooths a single period so turnover and holding cost ratios are not distorted by a stock level that happened to be unusually high or low on the closing date.
Average Inventory Calculator formula
Average inventory = (Opening inventory + Closing inventory) / 2
Worked example: Opening 40,000 and closing 60,000 gives an average of 50,000, a rise of 20,000 or 50% over the period.
How this works in your browser
The two-point average is opening plus closing divided by two; the multi-period mode averages every figure you enter instead. Offering both matters because the two-point method silently assumes stock moved smoothly between the endpoints, which is false for any seasonal business and produces a figure that can be far from what was actually held. All values are treated as cost-based, since that is what the metrics consuming this number require. Computed in your browser.
Who uses Average Inventory Calculator
Calculating turnover
Produce the denominator that turnover and days on hand need.
Year-end reporting
State average stock held for accounts or a lender.
Seasonal businesses
Average across months rather than relying on two endpoints.
Tracking stock levels
Compare average holdings across periods.
Frequently asked questions
Why does average inventory matter?
Because it is the denominator in turnover, days on hand and most other stock ratios. Using a single point-in-time figure instead skews all of them, particularly if that snapshot was taken just after a big delivery or at the end of a sale.
Is a two-point average good enough?
For a stable business, yes. For a seasonal one it can be badly misleading: opening and closing figures taken in quiet months miss the peak entirely. Averaging monthly figures across the year gives a much truer picture where stock swings.
Should inventory be valued at cost or retail?
At cost, for every metric that pairs it with cost of goods sold. Mixing a retail-valued inventory with a cost-based COGS is the most common error in these ratios and it distorts the result by your full margin.
Which period should I use?
Match whatever period you are analysing, and be consistent. A monthly turnover figure needs a monthly average inventory; pairing an annual COGS with a monthly average produces a meaningless ratio.
Are my figures uploaded?
No. Calculated entirely in your browser.