Days of Inventory on Hand

Measures the average days items stay in inventory.

Days of Inventory on Hand

Measures the average days items stay in inventory.

Days of Inventory on Hand

Measures the average days items stay in inventory.

Formula

Days of Inventory on Hand = (Ending Inventory / COGS) * 365

Know your metric

Importance of

Days of Inventory on Hand

  1. Inventory Management

This metric provides a clear snapshot of how many days a company’s current inventory will last, helping manage stock levels effectively.


  1. Financial Health Insight

Lower days of inventory on hand can indicate good sales velocity and efficient inventory replenishment practices, contributing to better financial health.


  1. 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

  1. Potential for Mismanagement

Too few days of inventory can lead to frequent stockouts, potentially damaging customer satisfaction and sales.


  1. Industry Variability

Like inventory turnover, this metric's optimal value varies significantly across different industries, which can complicate interpretation.


  1. 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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