Accounting Tips: Forecast Inventory Using Days Sales in Inventory

By Craig Anthony

0 min read

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.

Related Articles

Is an Accounting Franchise Right for You?

Buying an accounting franchise is one of the options available if you’re…

Read more

Tips for Accountants to Consider When Managing Their Accounting Practice Finances

If you’re an accountant with your own practice, you also have to…

Read more

Sharpen Your Budgeting Skills With Accurate Forecasting

Budgeting is one of the core functions of running a small business,…

Read more