Days in inventory

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'Days in inventory' (also known as 'Days Inventory Outstanding' or 'the Inventory Period'[1]) is an efficiency ratio that measures the average number of days the company holds its inventory before selling it. The ratio measures the number of days funds are tied up in inventory. Inventory levels (measured at cost) are divided by sales per day (also measured at cost rather than selling price.)

The formula for DII is:

DII = \dfrac{average~inventory}{COGS/Days}

where the average inventory is the average of inventory levels at the beginning and end of an accounting period, and COGS/day is calculated by dividing the total cost of goods sold per year by 365 days.[2]

This is equivalent to the 'average days to sell the inventory' which is calculated as:[3]

\mbox{Average days to sell the inventory}=\frac{\mbox{365 days}}{\mbox{Inventory Turnover Ratio}}

The article on Inventory turnover) provides a more complete discussion of issues related to the diagnosis of inventory effectiveness, although it does not provide these synonyms.

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Notes[edit]

  1. ^ Ross, S., Westerfield, Jordan, B.: Essentials of Corporate Finance, Eighth Edition, page 60, McGraw-Hill,2014.
  2. ^ Berman, K., Knight, J., Case, J.: Financial Intelligence for Entrepreneurs, page 149. Harvard Business Press, 2008.
  3. ^ Weygandt, J. J., Kieso, D. E., & Kell, W. G. (1996). Accounting Principles (4th ed.). New York, Chichester, Brisbane, Toronto, Singapore: John Wiley & Sons, Inc. p. 802.

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