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AE12

Days of Inventory

Days of Inventory measures the number of days worth of Inventory the company holds on its books.

Calculation

Days of Inventory
=
Inventory   × 365 days
Cost of Goods Sold

where

  • Inventory = Average total Inventory (= average of beginning and ending inventories). This includes Raw Material, Work-in-Process and Finished Goods inventories
  • Cost of Goods Sold = Total annual Cost of Goods Sold

Unit of measure: days (Calendar days)

Importance

A lower number of days indicate a better use of working capital. Reducing inventory frees up cash.

Notes

Days of Inventory measures all inventories of marketed products. This includes: Finished Goods, Raw Material, Work-in-Process, On-hold and Rejected. Days of Inventory reported by supply chain includes those inventories that are allocated to that specific supply chain. Returned products should therefore be reported for Reverse Logistics supply chain(s).

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Hierarchy

IDNameLevelx
AE1Cash Conversion Cycle1AE1
AE12Days of Inventory2AE12
AE121Days of Raw Materials Inventory3AE121
AE122Days of WIP Inventory3AE122
AE123Days of Finished Goods Inventory3AE123

Process(es)

IDNameLevelx
P1Plan Supply Chain Operations2P1
P2Plan Source2P2
P3Plan Make2P3
P4Plan Deliver2P4
P403Calculate Delivery Plan3P403
S1Source-to-Replenish2S1
S2Source-to-Order2S2
S3Source-to-Engineering-Order2S3
M1Make-to-Stock2M1
M2Make-to-Order2M2
M204Produce3M204
M3Make-To-Engineering-Order2M3
M305Produce3M305
M309Transfer3M309
M4Re-Make2M4
M410Transfer3M410
D1Deliver-From-Stock2D1
D2Deliver-to-Order2D2
D3Deliver-To-Engineering-Order2D3
D4Deliver Returns2D4
Days of Inventory Cash Conversion Cycle 51200 2 Asset, Management, Efficiency, Inventory, Days, Supply Chain, Stock, Working, Capital The number of days worth of Inventory the company holds on its books