If the figure is high, it will generally be an indicator of the fact that the company is encountering problems selling its inventory. Companies are aiming to keep their days in inventory figures low. What is Days in Inventory?ĭays in inventory is a measure of how many days, on average, a company takes to convert inventory to sales, which gives a good indication of company financial performance. If you are calculating a global indicator, it is better to take a long enough period, I recommend 1 year or 365 days. Period: the number of days in the period covered. Sales or Consumption: the sales made over that same period. Inventory Turnover (IT) = COGS / ĮI represents the ending inventory. Here is the formula: Average Inventory Value: the average inventory available over a period. The following formula is used to calculate inventory turnover:

Should a company be cyclical, the best way of assessing its operations is to calculate the average on a monthly or quarterly basis. It indicates when a company runs too lean on its stock. We calculate the average inventory by adding our starting and finishing inventories together and dividing by two. A lost sales ratio is the number of days a specific product is out of stock compared to the expected rate of sales for that product. We calculate inventory turnover by dividing the value of sold goods by the average inventory. The ratio can show us the number of times and inventory has been sold over a particular period, e.g., 12 months.

Inventory turnover is a very useful way of seeing how efficient a firm is at converting its inventory into sales. Material Turnover: Material turnover is a key performance indicator that measures the efficiency of a companys inventory management.

Material turnover ratio formula