Days inventory outstanding: Difference between revisions
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Days inventory outstanding is a working capital management ratio calculated by dividing inventory outstanding at the end of a time period by the average daily cost of goods sold for the period. | Days inventory outstanding is a working capital management ratio calculated by dividing inventory outstanding at the end of a time period by the average daily cost of goods sold for the period. | ||
For example: a company holds on average £30,000 of stock over a year. It sells £300,000 of goods per annum. | For example: a company holds on average £30,000 of stock over a year. It sells £300,000 of goods per annum. | ||
The days inventory outstanding are: | The days inventory outstanding are: | ||
30,000 / 300,000 | (30,000 / 300,000) x 365 | ||
= 36.5 days | |||
Revision as of 18:25, 3 February 2019
Financial ratio analysis - management efficiency ratios.
(DIO).
Days inventory outstanding is a working capital management ratio calculated by dividing inventory outstanding at the end of a time period by the average daily cost of goods sold for the period.
For example: a company holds on average £30,000 of stock over a year. It sells £300,000 of goods per annum.
The days inventory outstanding are:
(30,000 / 300,000) x 365
= 36.5 days
A lower number of days is usually considered desirable, because it is a quick measure of the amount of stock held, although the business must also gauge the amount of stock required to meet customers’ delivery expectations.
Also known as Inventory days.
