Days in Inventory Calculator
Days in Inventory calculator measures the average number of days the company holds its inventory before selling it.
Days in Inventory is frequently used together with Inventory Turnover Ratio. Days in Inventory formula is:
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Definitions and terms used in Days in Inventory Calculator
- Cost of Goods Sold (COGS)
- The direct cost attributable to the production or purchasing of the goods sold by a company during its fiscal year. It is also referred as Cost of sales.
- The merchandise, raw materials and sub-assemblies, finished and unfinished products, consumables held available in stock by a business.
What is Days in Inventory
Days in Inventory measures the average number of days it takes a company to turn its inventory into sales, a financial indicator of a company's performance. Days in Inventory estimates also the number of days the average inventory balance will be sufficient.
It is also known as 'days sales of inventory' and 'days inventory outstanding'.
Days in Inventory formula is:
Inventory Turnover Ratio formula is:
Average inventory should be used for inventory level to minimize the effect of seasonality.
Days in Inventory Analysis
Days in Inventory results should only be compared to industry averages and with company's prior ratio, since the averages varies significantly from one industry to another.
It is important to compare company's results over time and determine the trend.
If the number of days increases, the company may face a decline in sales or it increased its inventory faster than the sales growth.
If the number of days decreases, the company may face future lost of sales due to stock-outs if the level of inventory is too low.
Days in Inventory is a critical financial measurement, but there is no definitive answer in its own. The results should always be interpreted in connection with other financial indicators and should be part of any financial analysis performed.