Days Sales of Inventory Ratio

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Days Sales of Inventory Ratio

Days Sales of Inventory Ratio =

Ending Inventory

Cost of Good Solds

x 365

INTERPRETATION

The days’ sales in inventory ratio (DSI) is the number of days a company takes to sell its inventory. All inventories, whether raw materials, work in progress, or finished goods, are considered.

Note: expanded calculation

Divide the ending inventory by the cost of goods sold for the period and multiply it by 365. You can calculate the days in inventory for any period; adjust the multiple.

Days inventory usually focuses on ending inventory, whereas inventory turnover focuses on average inventory.

EXAMPLE

At the end of the year, M&M Company’s financial statements show an ending inventory of $50,000 and a cost of goods sold of $150,000. M&M’s days’ sales in inventory are

= (50000 / 150000) x 365 = 121.66

M&M’s ratio is 122 days. This means M&M turns their inventory into cash in an average of 122 days; in other words, M&M has enough stock to last 122 days. This time might be short or long, depending on the industry.

BENCHMARK: HA, PG, EB, ROT

Generally, a “good” DSI is 30 to 60 days, but that can vary depending on the industry, company size, and other factors.

And although a low DSI is preferable to a high one, a very low DSI can indicate that a company needs more inventory to meet demand.

Days Sales of Inventory Ratio:

ABBREVIATION KEY:

ROT: Rule of thumb
HA: Historical Average (organization’s historical average)
PG: Peer Group average
EB: Economic Benchmark

DISCLAIMER: The interactive calculators on this site are self-help tools intended to help you visualize and explore your financial information. They are not intended to replace the advice of a qualified professional. Because each business is different, we can not guarantee accuracy.