Inventory Period Calculator

Formula

To calculate the Inventory Period (IP):

\[ IP = \left( \frac{AI}{COGS} \right) \times 365 \]

Where:

$ IP $ is the Inventory Period (days)
$ AI $ is the Average Inventory
$ COGS $ is the Cost of Goods Sold

What is an Inventory Period?

The Inventory Period is the average number of days that a company’s inventory remains unsold. It is a measure of how quickly a company can turn its inventory into sales. A shorter inventory period indicates a more efficient inventory management and a faster turnover rate, which is generally favorable for businesses. Conversely, a longer inventory period may suggest overstocking or less demand for the company’s products.

Example Calculation

Let's assume the following values:

Average Inventory $ AI $ = $50,000
Cost of Goods Sold $ COGS $ = $200,000

Step 1: Use the inventory period formula:

\[ IP = \left( \frac{50,000}{200,000} \right) \times 365 = 0.25 \times 365 = 91.25 \text{ days} \]

The Inventory Period is 91.25 days.