Calculating average inventory: formula, example and what to do with it

Average inventory is the quantity or value you hold in stock on average over a period. The simplest formula is opening stock plus closing stock, divided by two. If you have 20,000 euros of stock on 1 January and 30,000 euros on 31 December, average inventory is 25,000 euros. The figure is the basis for stock turnover, inventory costs and judging whether you have too much or too little on the shelf.

How do you calculate average inventory?

Add the stock at the start of the period to the stock at the end and divide by two. That works in units and in euros, as long as you measure both values the same way, for example at purchase price. If stock fluctuates strongly during the year, for example because of seasonal buying, this formula gives a distorted picture. In that case, take the stock at the end of each month, add up the thirteen readings from the start of January to the end of December and divide by thirteen. The more measurement points, the closer the average comes to reality.

• Simple: (opening stock + closing stock) / 2
• More accurate: sum of the month-end stock levels / number of measurement points
• Per item or per group, always in the same unit

What does average inventory tell you about your business?

Divide the cost of goods sold by average inventory and you get stock turnover: how many times a year your stock is sold and replaced. If you sell 200,000 euros at cost per year with an average inventory of 25,000 euros, stock turnover is eight and an item sits on the shelf for a little over six weeks on average. Low turnover means capital that is tied up and space that costs money; very high turnover means a risk of stockouts. Average inventory multiplied by the cost percentage for interest, space, insurance and shrinkage also gives you the annual inventory carrying cost.

How does this relate to reorder point and safety stock?

Average inventory looks back; the reorder point and safety stock determine what you do going forward. The reorder point is the usage during the lead time plus the safety stock: the moment at which you order. A low average inventory combined with frequent stockouts points to a reorder point that is too low; a high average inventory with few sales points to order quantities that are too large. The free calculator at kantexsoftware.com/tools/reorder-point-calculator works out the reorder point and safety stock per item.

When should software calculate this for you?

With a few dozen items, a spreadsheet will do. With hundreds of items, several locations or batches with best-before dates, it no longer will: then you want average inventory, stock turnover and the reorder point per item updated automatically from actual purchases and sales. An integration between your POS or webshop and your inventory system delivers those figures every day, so you can see which items are sitting too long before the annual accounts tell you.

Last updated: October 23, 2026