DAYS INVENTORY Definition

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DAYS INVENTORY shows the average length of time items are in inventory, i.e., how many days a business could continue selling using only its existing inventory. The goal, in most cases, is to demonstrate efficiency through having a high turnover rate and therefore a low days' inventory. However, realize that this ratio can be unfavorable if either too high or too low. A company must balance the cost of carrying inventory with its unit and acquisition costs. The cost of carrying inventory can be 25% to 35%. These costs include warehousing, material handling, taxes, insurance, depreciation, interest and obsolescence. Formula: Inventory / (Net Revenue / 365).

Learn new Accounting Terms

INTERNAL CONTROL SYSTEM is a formalized system intended to provide reasonable assurance that the objectives of a program as a whole are met, e.g. financial control, quality control or process control.

ABSOLUTE CHANGE is a numerical change in an empirical value, e.g. cost of goods was reduced by $9.00.

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