Average Inventory: The average inventory balance is calculated by taking the sum of the inventory balances as of the beginning and end of the period and dividing it by two.Inventory Days = (Average Inventory ÷ Cost of Goods Sold) × 365 Days The formula to calculate inventory days is as follows. Step 4. Multiply the Resulting Figure by the Number of Days in the Period (e.g.Step 3. Divide the Average Inventory Balance by COGS.Step 2. Determine the Cost of Goods Sold (COGS) Incurred in the Current Period.Step 1. Calculate the Average Inventory Balance (Beginning of Period and End of Period Balance ÷ 2).The process of calculating a company’s inventory days can be broken into four steps: Forecasting Inventory: The standard method by which a company’s ending inventory balance is projected in a 3-statement model is the inventory days metric, which serves as the underlying assumption that drives the forecast.While there are various external factors at play, such as the state of the economy and unexpected developments in the market like a new entrant, a well-run company’s inventory supply generally converges near the actual demand from customers, albeit building precise projections on a moving target is much easier said than done. Demand Planning: A frequent hurdle faced among companies, especially at the earlier stages in their lifecycle, is accurately predicting customer demand.In addition, the less time it takes a company to sell its inventory implies the company’s existing strategies around acquiring new customers and its sales and marketing tactics are effective. reduce the number of days during which inventory remains unsold – the more operationally efficient the management team is at managing its working capital. Working Capital Management: The quicker a company can sell its inventory on hand – i.e.The following list describes some practical use-cases of the inventory days KPI: On the balance sheet, the “Inventory” line item appears in the current assets section and represents the outstanding dollar value of a company’s entire inventory and consists of three primary components: The inventory days metric, otherwise known as days inventory outstanding (DIO), counts the number of days on average it takes for a company to convert its inventory on hand into revenue. Inventory Days measures the average amount of time in which a company’s inventory is held on hand until it is sold.

Calculating inventory turn days