Financial ratio analysis - management efficiency ratios.
Inventory days 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 inventory days 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 Days inventory outstanding (DIO).