2016-12-09 00:00:00 Finance and Accounting English Learn what days sales in inventory is, what that means, and how the calculation can be used to better manage and forecast inventory levels. https://d1bkf7psx818ah.cloudfront.net/wp-content/uploads/2016/12/08214434/Worker-Reviewing-Inventory.jpg Accounting Tips: Forecast Inventory Using Days Sales in Inventory

Accounting Tips: Forecast Inventory Using Days Sales in Inventory

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Days sales in inventory is a measures the number of days that it will take for a company to sell all of its inventory. The calculation shows how many days a company’s inventory will last. It’s an important measure that helps quantify value, liquidity, and cash flow. The formula is:

Days sales in inventory = (Ending inventory / cost of goods sold) x number of days

For example, assume a business’s ending inventory is $500,000, cost of goods sold is $100,000, and the period in review is 31 days. The days sales in inventory is:

$500,000 / $100,000 x 31 = 155 days

This shows that the inventory will be on the shelves for 155 days. Typically, managers aim to have the value of this metric at about 90 days. Forecasting and budgeting inventory is more efficient and easier once the daily sales in inventory are known.

References & Resources

Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.

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