Running the business Inventory

Inventory turnover and dead stock

Inventory turnover tells you how many times a year your stock is sold and replaced. Dead stock is what has stopped moving altogether. Both are cash sitting on shelves, and both are easier to fix item by item than in total.

Updated 2026-11-053 min read

Who this is for

Distributors and wholesalers
Retailers and showrooms
Purchase managers
Owners funding stock on CC
Hardware and sanitaryware traders

On this page 12

The formulas

Inventory turnover = cost of goods sold ÷ average stock (at cost)
Days of stock = 365 ÷ inventory turnover, or average stock ÷ cost of goods sold × 365
Average stock = (opening stock + closing stock) ÷ 2, or better, the average of month-end stock values

Use cost values on both sides. Comparing stock at cost with sales at selling price makes turnover look better than it is.

Worked example

A hardware wholesaler has cost of goods sold of ₹3,60,00,000 for the year. Opening stock was ₹55,00,000 and closing stock ₹65,00,000.

Average stock = (55,00,000 + 65,00,000) ÷ 2 = ₹60,00,000
Turnover = 3,60,00,000 ÷ 60,00,000 = 6 times a year
Days of stock = 365 ÷ 6 ≈ 61 days

If the same business ran at 45 days of stock, average stock would be about ₹44,40,000 (3,60,00,000 ÷ 365 × 45), freeing around ₹15,60,000 of cash.

Look item by item

A healthy total can hide problems. Run turnover or days of stock for each item or stock group and sort them:

Item	Stock (cost)	Sold in last 90 days (cost)	Days of stock
PVC pipe 1 inch	₹1,20,000	₹3,60,000	30
CP tap model X	₹2,40,000	₹1,20,000	180
Old-design basin	₹1,80,000	₹0	No sale

Days of stock here = stock ÷ 90-day sales × 90. The pipe is fine. The tap has six months of stock. The basin is dead.

Define slow and dead stock

Agree simple rules, for example:

Slow-moving: more than 120 days of stock, or no sale in 60 days.
Dead: no sale in 180 days.

Pick limits that suit your trade. Seasonal goods (fans, heaters, festive items) need judging against their season, not the whole year; see festive season stock planning.

How to clear dead stock

Stop reordering it. Obvious, but often missed when reorders are on autopilot.
Offer it to your best dealers first, at a special rate or bundled with fast items.
Return or exchange with the supplier, if your terms allow.
Move it to a branch where it sells better.
Sell at cost or below to a liquidator. Cash today beats a shrinking value on the shelf.
Write off damaged or obsolete stock with your CA's advice. Under GST, input tax credit on goods written off, lost or destroyed is generally not allowed and may need to be reversed; see blocked input tax credit. This is general information, not tax advice.

Preventing it next time

Set reorder levels from actual sales, not from supplier pressure.
Buy new or trial items in small quantities until they prove themselves.
Review a slow-moving list every month with the purchase team.
Be wary of supplier schemes that need large quantities for a small extra discount.

A monthly stock review in 20 minutes

Export the item-wise stock and sales for the last 90 days.
Calculate days of stock for each item and sort from highest to lowest.
Mark items above your slow-moving limit and any with no sale.
For each marked item, decide one action: stop reorder, push to dealers, return, transfer, or clear.
Note the total value of marked items and compare with last month.

The total value of slow and dead stock is a single number worth watching every month, just like overdue receivables. When it falls, cash is being released.

Stock reports with Tally and Cashflow OS

Cashflow OS syncs stock and item summaries from TallyPrime, so you can check quantities and values on your phone and the web, for any period. Export them to Excel to work out days of stock by item, and use the Profit & Loss for cost of goods sold. Tally stays the record of stock; Cashflow OS is a faster way to look at it. See financial reports.

Avoid these

Common mistakes

MistakeMeasuring turnover with sales at selling price
Do this instead
Use cost of goods sold against stock at cost, so both sides are on the same basis.
MistakeLooking only at the total turnover figure
Do this instead
Work out days of stock for each item or group; the total can look fine while some items have not moved in months.
MistakeLetting reorders run on autopilot
Do this instead
Stop reordering items above your slow-moving limit, and set reorder levels from actual sales, not supplier pressure.
MistakeJudging seasonal goods against the whole year
Do this instead
Judge fans, heaters and festive items against their own season before calling them slow or dead.

Keep handy

Checklist

Inventory turnover and dead stock — 7 checks. Tick them as you go.

Average stock taken from month-end values where possible
Days of stock worked out item by item
Slow and dead limits written down for your trade
One action decided for every marked item
Total value of slow and dead stock tracked monthly
New items bought in small quantities until proven
Write-offs and their ITC effect discussed with your CA

In Cashflow OS

How Cashflow OS helps

Cashflow OS puts your TallyPrime books on every phone in the team. Where it fits this topic:

Stock and item summaries on demand

Stock and item summaries sync from TallyPrime, so you can check quantities and values for any period on phone or web. Tally stays the record of stock.

See Financial reports from Tally

Export for the monthly review

Export stock and sales to Excel to work out days of stock by item, and take cost of goods sold from the synced Profit & Loss.

See Reports in Excel and PDF

Questions people ask

What is a good inventory turnover ratio?

It depends heavily on the trade. Fast-moving consumer goods turn much faster than tiles or machinery spares. Compare your own figure over time and by item group.

Is high turnover always good?

Mostly, but very high turnover with frequent stock-outs means lost sales. The aim is the lowest stock that still keeps customers supplied.

Should dead stock be valued at cost in the books?

Stock is generally valued at the lower of cost and net realisable value. If dead stock can only be sold below cost, discuss the valuation with your CA.

Should I measure turnover in value or quantity?

Use value at cost for the business as a whole and for groups. Quantity works for comparing similar items within a group, such as sizes of the same pipe.

What is the difference between slow-moving and dead stock?

Slow-moving stock still sells, but too slowly for the amount held. Dead stock has stopped selling altogether, for example no sale in 180 days. Set limits that suit your trade.

How do I work out days of stock for one item?

Divide the item's stock at cost by its cost of sales over a recent period, then multiply by the days in that period, for example stock ÷ 90-day sales × 90.

Can I return dead stock to the supplier?

Only if your terms allow it. Check the agreement, and record the return with a debit note so stock, the supplier's account and GST stay correct.

Does buying in bulk always save money?

Bulk buying can lower the purchase price, but interest on the money tied up, storage and the risk of the stock going dead can cost more than the discount.

This page is general information for Indian businesses, not tax, legal or financial advice. Rules and rates change — check the official portals or your CA before acting.