Inventory turnover in days takes a firm's inventory turnover ratio and divides it by 365. The ratio shows how many days it takes a company to sell off the inventory it has on hand. The lower the inventory ratio in days, for example three days, the faster a company sells off its inventory during the year. The higher the inventory ratio in days, for example 80 days, the slower a company sells of its inventory. This ratio is subjective, so you need to compare results with industry and similar firm results.
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Things you need
- Financial statements
Find cost of goods sold on a company's income statement. Find inventory on the same company's balance sheet.
Divide cost of goods sold by inventory to calculate inventory turnover.
Divide 365 by inventory turnover to calculate inventory turnover in days.
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