1. What is Days Inventory?

Days Inventory, also known as Days Sales of Inventory (DSI), measures the average number of days a company holds its inventory before selling it. This financial ratio indicates inventory management efficiency and liquidity.

2. How Does the Calculator Work?

The calculator uses the Days Inventory formula:

Where:

• \( \text{Average Inventory} \) — The average value of inventory during the period ($)
• \( \text{COGS} \) — Cost of Goods Sold for the period ($)
• \( 365 \) — Number of days in a year

Explanation: This formula calculates how many days it would take to sell the entire inventory based on current sales rates.

3. Importance of Days Inventory Calculation

Details: Days Inventory is crucial for assessing inventory management efficiency, identifying potential cash flow issues, and comparing performance against industry benchmarks. Lower days typically indicate better inventory management.

4. Using the Calculator

Tips: Enter Average Inventory and COGS in dollars. Both values must be positive numbers. Use consistent time periods (e.g., annual data for both inputs).

5. Frequently Asked Questions (FAQ)

Q1: What is a good Days Inventory value?
A: It varies by industry. Generally, lower values are better, but compare against industry averages. Retail typically has 30-90 days, while manufacturing may be higher.

Q2: How is Average Inventory calculated?
A: Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2, or use periodic averages for more accuracy.

Q3: Why use COGS instead of sales?
A: COGS represents the actual cost of inventory sold, making it more accurate for inventory turnover calculations than sales revenue.

Q4: What does a high Days Inventory indicate?
A: High values may suggest overstocking, slow-moving inventory, or potential obsolescence issues.

Q5: How often should Days Inventory be calculated?
A: Typically calculated quarterly or annually for financial analysis, but can be monitored monthly for inventory management purposes.