The formula Days in period / [COGS/Inventory] corresponds to which metric?

• A. Days Inventory
• B. Days Payable
• C. Days Receivable
• D. Days Sales Outstanding

Answer: (A)

The main idea is how long inventory sits in stock before it’s sold. Inventory turnover shows how many times inventory is sold and replenished in a period, and it’s computed as COGS divided by average inventory. To turn that turnover into a time measure, you divide the length of the period by the turnover, giving days of inventory on hand. The given formula uses Days in period divided by COGS/Inventory, which is the same as Days in period times Inventory divided by COGS. That yields the days of inventory on hand when Inventory approximates average inventory. So this metric is Days Inventory On Hand (Days Inventory). The other options relate to how long it takes to collect from customers or to pay suppliers, not to how long inventory remains on hand.