Days inventory turnover formula10/4/2023 ![]() To do this the ABC-analysis, XYZ-analysis and other methods can be applied. In case the inventory turnover value exceeds the normative range it is necessary to optimize the inventories structure. Resolving the problems with the inventory turnover (days) exceeding the normative range: That's why the inventories management policy must take into account seasonal fluctuations, changes in consumers tastes, peculiarities of the industry and production process, delivery delays, etc. In this case, the production or sales process can be paralyzed. Should be remembered that the ratio value happens to be too low. Overall, the faster is the period of one turn of the company's average inventories, the more efficient its inventories management is. Source: Almanac of Business and Industrial Financial Ratios Religious, Grantmaking, Civic and Professional Organizations Normative values of the inventory turnover (days) for different industries look as follows: IndicatorĮlectric Power Generation, Transmission and Distribution To estimate the efficiency of the company's efforts in this area more precisely, it is reasonable to compare the value of this ratio with the major competitors. It means that less funds are being distracted to form the inventories. The decline of the inventory turnover (days) value during the year is a positive trend for the company. The ratio can be computed by multiplying the company's average inventories by the number of days in the year, and dividing the result by the cost of goods sold. It indicates how many days the firm averagely needs to turn its inventory into sales. ![]() ![]() Inventory Turnover (Days) (Days Inventory Outstanding) – an activity ratio measuring the efficiency of the company's inventories management.
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