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(Average inventory/Cost of sales) * 365 days
Average inventory can be arrived by taking this year's and last year's inventory values and dividing by 2
- (Opening inventories + closing inventories) / 2.
This ratio demonstrates how long the inventory stays in the company before it is sold. The lower the ratio the more efficient the company is trading though this may result in low levels of inventories to meet demand. A lengthening inventory period may indicate a slowdown in trade and an excessive build-up of inventories, resulting in additional costs.
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(Average inventory/Cost of sales) * 365 days Average inventory can be arrived by taking this year's and last year's inventory values and dividing by 2 - (Opening inventories
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