Days in inventory

Days in inventory (also known as "Inventory Days of Supply", "Days Inventory Outstanding" or the "Inventory Period"Ross, S., Westerfield, Jordan, B.: Essentials of Corporate Finance, Eighth Edition, page 60, McGraw-Hill, 2014.) is an efficiency ratio which measures the average number of days a company holds its inventory before selling it. The ratio measures the number of days funds are tied up in inventory. Inventory levels (measured at cost) are divided by sales per day (also measured at cost rather than selling price.)

The formula for days in inventory is:

$DII\; =\; \backslash dfrac\{average~inventory\}\{COGS/Days\}$, alternatively expressed as:

$DII\; =\; \backslash dfrac\{Inventory\}\{Average~day\text{'}s~COGS\}$,Drake, P. P., Financial ratio analysis, p. 8, published on 15 December 2012

where DII is days in inventory and COGS is cost of goods sold. The average inventory is the average of inventory levels at the beginning and end of an accounting period, and COGS/day is calculated by dividing the total cost of goods sold per year by the number of days in the accounting period, generally 365 days.Berman, K., Knight, J., Case, J.: Financial Intelligence for Entrepreneurs, page 149. Harvard Business Press, 2008.

This is equivalent to the 'average days to sell the inventory' which is calculated as:Weygandt, J. J., Kieso, D. E., & Kell, W. G. (1996). Accounting Principles (4th ed.). New York, Chichester, Brisbane, Toronto, Singapore: John Wiley & Sons, Inc. p. 802.

:: $\backslash mbox\{Average\; days\; to\; sell\; the\; inventory\}=\backslash frac\{\backslash mbox\{365\; days\}\}\{\backslash mbox\{Inventory\; Turnover\; Ratio\}\}$