Days sales in inventory is a measures the number of days that it will take for a company to sell all of its inventory. The calculation shows how many days a company’s inventory will last. It’s an important measure that helps quantify value, liquidity, and cash flow. The formula is:
Days sales in inventory = (Ending inventory / cost of goods sold) x number of days
For example, assume a business’s ending inventory is $500,000, cost of goods sold is $100,000, and the period in review is 31 days. The days sales in inventory is:
$500,000 / $100,000 x 31 = 155 days
This shows that the inventory will be on the shelves for 155 days. Typically, managers aim to have the value of this metric at about 90 days. Forecasting and budgeting inventory is more efficient and easier once the daily sales in inventory are known.