1. What is Days Inventory?

Days Inventory, also known as Days Inventory Outstanding (DIO) or Inventory Days on Hand, measures the average number of days a company holds its inventory before selling it. It indicates how efficiently a company manages its inventory.

2. How Does the Calculator Work?

The calculator uses the Days Inventory formula:

Where:

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

Explanation: This formula calculates how many days it would take to sell the average inventory based on the current cost of goods sold rate.

3. Importance of Days Inventory Calculation

Details: Days Inventory is a crucial financial metric that helps businesses understand their inventory management efficiency. A lower number indicates faster inventory turnover, which is generally better for cash flow and reduces storage costs.

4. Using the Calculator

Tips: Enter the average inventory value in dollars and the annual cost of goods sold in dollars per year. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Days Inventory value?
A: Ideal Days Inventory varies by industry. Generally, lower values are better, but compare with industry averages for meaningful analysis.

Q2: How do I calculate Average Inventory?
A: Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2 for the period being analyzed.

Q3: What if I have monthly COGS instead of annual?
A: Multiply monthly COGS by 12 to get annual COGS, or use 30 instead of 365 in the formula for monthly calculations.

Q4: Why is Days Inventory important for businesses?
A: It helps identify inventory management issues, optimize stock levels, improve cash flow, and reduce holding costs.

Q5: Can Days Inventory be too low?
A: Yes, extremely low Days Inventory may indicate stockouts and lost sales opportunities. Balance is key.