Average Days of Inventory Formula

Average Days of Inventory Formula:

\[ ADI = \frac{\text{Average Inventory}}{\text{COGS}} \times 365 \]

Average Days of Inventory (ADI):

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is Average Days of Inventory?

Average Days of Inventory (ADI) is a financial metric that measures the average number of days a company holds its inventory before selling it. It represents the holding period for stock and indicates inventory management efficiency.

2. How Does the Calculator Work?

The calculator uses the Average Days of Inventory formula:

\[ ADI = \frac{\text{Average Inventory}}{\text{COGS}} \times 365 \]

Where:

\( ADI \) — Average Days of Inventory (days)
\( \text{Average Inventory} \) — Average inventory value over a period (currency)
\( \text{COGS} \) — Cost of Goods Sold (annual currency)
\( 365 \) — Number of days in a year

Explanation: The formula calculates how many days it takes for a company to turn its inventory into sales, providing insight into inventory management efficiency.

3. Importance of ADI Calculation

Details: ADI helps businesses optimize inventory levels, reduce carrying costs, improve cash flow, and identify potential inventory management issues. A lower ADI generally indicates better inventory turnover.

4. Using the Calculator

Tips: Enter average inventory in currency units and annual COGS in currency units. Both values must be positive numbers. The calculator will compute the average days inventory is held before sale.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ADI value?
A: Ideal ADI varies by industry. Generally, lower values are better, but industry benchmarks should be considered for proper evaluation.

Q2: How is Average Inventory calculated?
A: Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2, typically calculated for a specific period.

Q3: What's the difference between ADI and Inventory Turnover?
A: Inventory Turnover measures how many times inventory is sold and replaced, while ADI shows how long inventory is held in days.

Q4: Can ADI be too low?
A: Extremely low ADI may indicate stockouts or insufficient inventory levels, potentially leading to lost sales opportunities.

Q5: How often should ADI be calculated?
A: ADI should be calculated regularly (monthly or quarterly) to monitor inventory management performance and identify trends.