Day’s Sales In Inventory


Day’s sales in inventory are also known as inventory management and day’s inventory outstanding. It calculates the number of days a company takes to convert its inventory into sales. By inventory we mean the investment which company has made including the raw material and goods used. It helps the company officials and investors to know how the company is performing in comparison to other companies. This helps us to determine the financial position of a company.

It is essential for an investor to know the day’s sales in inventory of a company before he invests his shares in any company as by knowing this anyone can know about the financial health of the firm. As soon as the company gets its inventory converted into sales, the company has a sound financial health. If it takes a long time, then the company’s financial health is doubtful.

You can calculate day’s sales inventory by dividing inventory of the company with its cost of salesand multiplying it with 365 that is total number of days in an year.

Formula for calculating day’s sales in inventory is:

If the number of days comes out to be low, then it indicates that the company quickly changes its inventory into sales. Whereas if the number of days comes out to be more, then this shows that the company takes a long time to change its inventory in sales and so is not efficient enough. The company must try to get its inventory converted to sales as soon as possible to maintain a good reputation in the market. This helps the firm to stay in the market with good financial health for a long period of time.

Example of Day’s Sales In Inventory

For instance, there is a company ABC LIMITED. ABC LIMITED has its inventory as $1 million and its cost of sales is $6 million. So now we will first calculate the inventory turnover ratio by dividing inventory with cost of sales.

Inventory turnover ratio of ABC LIMITED= ($1million/$6 million)

Its days sales of inventory= inventory turnover ratio 365

= $ 1million/ $6 million 365

= 60.8 days sales in inventory

Through this example we get to know that ABC LIMITED gets its inventory calculated into sales in about 60days which is quite good. So this shows that the company is quite stable and efficient in its working.

Apart from this, there is a conversion cycle that many companies follows to determine day’s sales in inventory or inventory management. It involves three steps.

Firstly, the company calculates day’s sales in inventory that is how fast the raw materials get converted into cash.

Secondly, it calculates day’s sales outstanding, that is how it converts the credit sale into cash.

Lastly, it calculates day’s payable outstanding that is how long a company will take to pay its dues.

By following this cash conversion cycle, many efficient companies calculate day’s sales in inventory. The lower the number, better it is for the company. provides timely homework help at reasonable charges with detailed answers to your Finance problems so that you get to understand your assignments or homework better apart from having the answers. Our tutors are remarkably qualified and have years of experience providing assignment help in topics like Day’s Sales in Inventory and Finance homework help.

Understand Finance better with these Q&A

More Q&A
Submit Your Questions Here!
Copy and paste your question here...

Attach Files

Top Finance Online Experts