Days’ sales in inventory

Definition

Days' sales in inventory measures how many days it takes for a company to sell its entire inventory. It is an indicator of the efficiency of a company's inventory management and sales performance.

5 Must Know Facts For Your Next Test

1. It is calculated by dividing ending inventory by cost of goods sold (COGS) and then multiplying by 365.
2. A lower number indicates faster inventory turnover, implying better efficiency.
3. It is also known as Inventory Days or Days Inventory Outstanding (DIO).
4. Days' sales in inventory can be compared across companies within the same industry to gauge operational efficiency.
5. This ratio helps investors understand how well a company manages its stock and affects liquidity.

Review Questions

• How do you calculate days' sales in inventory?
• What does a lower days' sales in inventory indicate about a company's efficiency?
• Why is comparing days' sales in inventory across companies useful?

Related terms

Inventory Turnover Ratio: Measures how often a company sells and replaces its stock during a period.

Cost of Goods Sold (COGS): The direct costs attributable to the production of goods sold by a company.

Liquidity: The ability of a company to meet its short-term financial obligations using its most liquid assets.