 # Inventory Days Formula

## What are Inventory Days?

Inventory days (also known as average days in inventory) represent the average number of days a company takes to transform its inventory into sales.

## Significance of Inventory Days in E-commerce Business

Calculating inventory days becomes essential for businesses to calculate the efficiency of sales. Some of the benefits of inventory days in e-commerce business include:

• Avoiding stockouts and allowing e-commerce merchants to maintain the right inventory in stock
• Reducing the money spent on warehousing by retaining a low average of inventory days on hand
• Decreasing risks of spoilage
• Decreasing costs and enhancing cash flows

## Applications of the Inventory Days Formula

Using the inventory days formula, companies can decrease the risk of stock spoilage. Some basic applications for inventory include:

• Helping e-commerce businesses predict customer demand
• Identifying inventories that are difficult to sell
• Determining the sales performance of a product
• Indicating the duration of time a business’ cash is tied up to the inventory

## Inventory Days Formula

### Inventory Days =

(Average Inventory / COGS) x Number of Days

## Definition of Each Element Used in the Formula

The inventory days formula involves the following elements:

Average inventory: It is the number of units a company usually holds in inventory. To calculate the average inventory,

### Average inventory =

(Beginning Inventory + Ending Inventory)

2

Cost of Goods Sold (COGS): It is the total cost of procuring or manufacturing the products sold during a particular period. Companies can calculate COGS using the following formula:

### COGS =

The Beginning Inventory + Purchases – Ending Inventory

Number of days: It is the amount of time you need to calculate the days in inventory. Usually, this number is 365.

## How to Use the Inventory Days Formula to Calculate a Business’ Inventory Days?

Suppose Company X sells dental supplies. Its average inventory is A\$1,000, and the cost of goods sold is A\$50,000 for the year. You can get inventory days using the day sales in inventory formula as below:

Inventory Days = (A\$1,000 / A\$50,000) x 365 = 7.3 days.

## What Can You Infer From the Result of the Days Inventory Formula?

The less time each product spends in inventory, the lower the storage cost. A smaller number of inventory days indicates the company’s efficiency in inventory management. 