Days inventory on hand
How many days of sales your current stock represents.
How it works
Days inventory = (average inventory ÷ COGS) × days in period
The same relationship as inventory turnover, expressed in days instead of turns, which is easier to act on: 'we hold sixty days of stock' says something a meeting can respond to. Set the period to match the COGS figure — 365 for a year, 90 for a quarter, 30 for a month. Using annual COGS with a 30-day period produces a number twelve times too small.
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Frequently asked questions
- How does this relate to turnover?
- They are the same measurement inverted. Days equals the period divided by turns, so six turns a year is about sixty-one days.
- Where does it fit in the cash cycle?
- It is the first term of the cash conversion cycle: days inventory plus days receivable minus days payable. It tells you how long cash sits in stock before a customer pays for it.
- Is lower always better?
- No. Lower means less cash tied up, but past a point it means stockouts, expedited freight and lost sales. The right level is the one your service target can live with.