- Inventory Period:
- What does Inventory Period mean?
- The Inventory Period shows how long it takes a company to sell its current inventory. Or it tells how long inventory sits on the shelf and remains unsold. This ratio can be considered an efficiency ratio and is important as it shows how inventory turnover changes over time.
Inventory Period = 365 × Average Inventory / Annual Cost of Goods Sold
The inventory period also can be calculated as 365 divided by inventory turnover:-
Inventory Period = 365 / Inventory Turnover
A firm’s annual report shows the beginning inventory as $500,000 while its ending inventory is $550,000. Now, divide the sum of $1,050,000 by two to get the average inventory of $525,000 for the year.
The inventory turnover for the year equals ($5,000,000) / ($525,000) i.e. 9.5
Therefore, Inventory Period is:-
- = 365 days / 9.5 = 38 days
- Jun 11, 2018
- Tool Launched