What is average inventory?
Average inventory is the typical value of stock held across a period, estimated from the opening and closing balances. It smooths out the effect of a single unusually high or low count and is the figure used in inventory turnover, days inventory outstanding and GMROI.
Formula
Average inventory = (beginning inventory + ending inventory) ÷ 2
Worked example
Inventory was 42,000.00 at the start of the period and 58,000.00 at the end. The average is 50,000.00; stock rose by 16,000.00, a change of 38.1%.
How to use the average inventory calculator
- Enter your figures: beginning inventory and ending inventory.
- Read the result. It updates as you type, so there is no button to press.
- Try other numbers to compare scenarios. Reset brings back the example values.
Getting it right
- Value both figures the same way, normally at cost, and by the same method (FIFO, weighted average and so on).
- For a full year, averaging every month-end balance gives a truer figure than two points if your stock is seasonal.
- A falling average with steady sales means better stock control; a rising one means cash is building up on the shelves.
Frequently asked questions
How do you calculate average inventory?
Add the beginning inventory to the ending inventory and divide by two. For more accuracy over a year, add each month-end balance and divide by the number of balances.
Why use average inventory instead of ending inventory?
Stock on a single day can be distorted by a large delivery or a seasonal sale. The average represents what was held during the whole period, which is what ratios need.
Is average inventory in units or in money?
Either works. Financial ratios use the money value at cost, while warehouse planning often uses units.