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Formula
Days of Inventory on Hand = (Ending Inventory / COGS) * 365
Know your metric
Importance of
Days of Inventory on Hand
Inventory Management
This metric provides a clear snapshot of how many days a company’s current inventory will last, helping manage stock levels effectively.
Financial Health Insight
Lower days of inventory on hand can indicate good sales velocity and efficient inventory replenishment practices, contributing to better financial health.
Operational Planning
Knowing inventory duration helps in operational planning and logistics, ensuring that production and supply chain activities are well-coordinated.
Drawbacks of
Days of Inventory on Hand
Potential for Mismanagement
Too few days of inventory can lead to frequent stockouts, potentially damaging customer satisfaction and sales.
Industry Variability
Like inventory turnover, this metric's optimal value varies significantly across different industries, which can complicate interpretation.
Does Not Reflect Sales Fluctuations
Inventory on hand might not always align with demand fluctuations, potentially leading to either excess stock or insufficient product availability.
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