What is the formula for Days Inventory?

• A. Days in period / [COGS/Inventory]
• B. Days in period / [AR/Inventory]
• C. COGS / Inventory
• D. Inventory / COGS

Answer: (A)

Days Inventory measures how long, on average, inventory stays on hand before it’s sold. It’s found by converting how quickly inventory turns into cost of goods sold into a time measure. The basic idea is to take the length of the period and divide by the inventory turnover. Inventory turnover is COGS divided by average inventory, so Days Inventory = Days in period / (COGS / Average Inventory). This is the same as 365 × Average Inventory / COGS when you’re using a yearly period.

For example, if annual COGS is 1,000,000 and average inventory is 200,000, turnover is 5 times per year, and Days Inventory = 365 / 5 = 73 days (or 365 × 200,000 / 1,000,000 = 73 days).

The other expressions don’t convert turnover into a days figure: one mixes in AR instead of inventory, another gives the turnover ratio, and the remaining form lacks the period length needed to express days.