Inventory days
Inventory days is the average number of days a company holds its stock of goods and raw materials before selling it.
Inventory days = (Inventory ÷ Cost of goods sold) × 365
What it is
Every company that makes or sells physical goods keeps stock: raw materials, half-finished goods and finished products. That stock is money already spent but not yet earned back.
Inventory days turns the inventory figure into time. It tells you how many days of sales the company has sitting in its warehouses. Some analysts use sales instead of cost of goods sold in the formula, so check which version you are comparing.
How to read it
The trend matters most. Inventory days that stay roughly steady are normal. Inventory days climbing year after year can mean products are not selling, the company is producing ahead of demand, or stock is becoming outdated.
Compare only with similar businesses. A jeweller or a heavy machinery maker naturally holds stock for months. A dairy or a quick-service food company cannot hold stock for long at all.
Why it matters
Stock that does not sell ties up cash and may later have to be sold at a discount or written off. That hits profit and can surprise investors who only watched sales.
Inventory days is one part of the working capital cycle. Read it with receivable days and cash from operations to see whether profit is turning into cash.
Stock piling up
A company has cost of goods sold of ₹730 crore and inventory of ₹100 crore. Inventory days = ₹100 ÷ ₹730 × 365 = 50 days. Two years later, cost of goods sold is ₹800 crore but inventory has grown to ₹200 crore. Inventory days is now about 91. Stock is growing far faster than sales.
Common mistakes
- Comparing inventory days across very different industries.
- Ignoring a steady rise because sales are still growing.
- Forgetting that some build-up can be planned, for example before a festive season, so check the explanation.
Inventory days has risen from 45 to 110 over three years while sales were flat. What is the most likely concern?
- Goods are not selling and cash is getting stuck in stock
- The company is selling faster than before
- Inventory days does not affect cash
Show the answer
Goods are not selling and cash is getting stuck in stock. With flat sales, more than double the inventory days means stock is piling up. That money is tied up and some of it may have to be written off.
Common questions
What is a good inventory days number?
It depends on the industry. Look for a steady or falling trend and compare with similar companies rather than using one fixed number.
What does high inventory days mean?
It means stock sits for a long time before being sold. That can be normal for some industries, but a rising trend often points to weak demand or overproduction.
How is inventory days different from receivable days?
Inventory days measures how long goods sit before they are sold. Receivable days measures how long customers take to pay after the sale.
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