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Inventory Ratios

Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA PM Exams › Inventory Ratios

  • This topic has 1 reply, 2 voices, and was last updated 1 year ago by John Moffat.
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  • March 28, 2021 at 1:35 pm #615370
    Sourav9271
    • Topics: 157
    • Replies: 103
    • ☆☆☆

    Sir,
    What is the difference between inventory days and inventory turnover..I found that inventory days is:
    Closing Inventory
    ——————————-×365
    Cost of goods sold

    And inventory turnover is quite the opposite!

    Sir can you explain a bit about this?

    March 29, 2021 at 5:54 am #615437
    John Moffat
    Keymaster
    • Topics: 57
    • Replies: 49603
    • ☆☆☆☆☆

    Suppose the sales are $100,000 and the inventory is $10,000.

    Then the inventory days is 10,000/100,000 x 365 = 36.5 days. This is the average number of days that inventory is held for before it is sold.

    The inventory turnover is 100,000 / 10,000 = 10. This means that they are selling (turning over) the inventory 10 times a year. The higher the inventory turnover, the less time they are holding inventory for before selling it.

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