1. What is Days in Inventory?

Days in Inventory (DOI) is a financial ratio that measures the average number of days a company holds its inventory before selling it. It indicates how quickly inventory is turned over and reflects inventory management efficiency.

2. How Does the Calculator Work?

The calculator uses the Days in Inventory formula:

Where:

• \( Average Inventory \) — Average value of inventory during the period (currency)
• \( COGS \) — Cost of Goods Sold for the year (currency/year)
• \( 365 \) — Number of days in a year

Explanation: The formula calculates how many days on average inventory sits in storage before being sold. A lower DOI indicates faster inventory turnover.

3. Importance of Days in Inventory

Details: Days in Inventory is crucial for assessing inventory management efficiency, identifying potential obsolescence risks, optimizing working capital, and improving cash flow management.

4. Using the Calculator

Tips: Enter average inventory value in currency units and annual COGS in currency/year. Both values must be positive numbers for accurate calculation.

5. Frequently Asked Questions (FAQ)

Q1: What is a good Days in Inventory ratio?
A: It varies by industry, but generally lower is better. Retail and fast-moving goods typically have lower DOI (30-60 days), while manufacturing may have higher (60-90 days).

Q2: How is Average Inventory calculated?
A: Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2, usually calculated for a specific period.

Q3: Why use 365 days in the formula?
A: 365 represents the number of days in a year, standardizing the calculation for annual financial analysis.

Q4: What does a high DOI indicate?
A: High DOI may indicate slow-moving inventory, potential obsolescence, overstocking, or poor sales performance.

Q5: How can companies improve their DOI?
A: Through better inventory management, demand forecasting, supplier coordination, sales promotions, and reducing slow-moving items.