How is inventory turnover related to days sales in inventory?

Inventory turnover shows how quickly a company can sell (turn over) its inventory. Meanwhile, days of inventory (DSI) looks at the average time a company can turn its inventory into sales. DSI is essentially the inverse of inventory turnover for a given period, calculated as (inventory / COGS) * 365.

How does inventory turnover certain the number of sales?

Inventory turnover is the rate that inventory stock is sold, or used, and replaced. The inventory turnover ratio is calculated by dividing the cost of goods by average inventory for the same period. A higher ratio tends to point to strong sales and a lower one to weak sales.

What is the number of days sales in inventory?

Key Takeaways. Days sales of inventory (DSI) is the average number of days it takes for a firm to sell off inventory. DSI is a metric that analysts use to determine the efficiency of sales. A high DSI can indicate that a firm is not properly managing its inventory or that it has inventory that is difficult to sell.

Should days sales in inventory be high or low?

A small number of days’ sales in inventory indicates that a company is more efficient at selling off its inventory, while a large number indicates that it may have invested too much in inventory, and may even have obsolete inventory on hand.

What does inventory turnover measure?

The inventory turnover ratio is an effective measure of how well a company is turning its inventory into sales. The ratio also shows how well management is managing the costs associated with inventory and whether they’re buying too much inventory or too little.

What is a good inventory turnover days?

A good inventory turnover ratio is between 5 and 10 for most industries, which indicates that you sell and restock your inventory every 1-2 months. This ratio strikes a good balance between having enough inventory on hand and not having to reorder too frequently.

What is a good inventory to sales ratio?

The ideal stock to sales ratio tends to be between 0.167 and 0.25 — but for growing ecommerce businesses, the value can be higher to account for growing order volumes.

How do you convert inventory turnover to days?

Turnover Days in Financial Modeling You can calculate the inventory turnover ratio by dividing the inventory days ratio by 365 and flipping the ratio. In this example, inventory turnover ratio = 1 / (73/365) = 5. This means the company can sell and replace its stock of goods five times a year.