Successful inventory management is an essential part of a company. Too much inventory means paying for storage, possible waste or theft, the opportunity cost that the time and space used to hold onto inventory that remains unsold could have been used instead to buy products that would sell. Having too little inventory, on the other hand, could lead to shortages and possibly missed sales opportunities.
Inventory days indicate the average no of days goods remain in the inventory before being sold. The process of turning of raw materials into cash. Inventory days can be called as days cover, days of inventory or days sales to inventory.
Inventory days = Closing Inventory x 365
Cost of sales (Revenue)
Lower the no of days in the inventory emphasis the company efficiency. It increases the company liquidity level as well. In other hand low inventory days indicates company is not keeping enough stock on hand to meet demands. Higher the no indicates that there is lack of demand for the product being sold.
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