How to Calculate Average Days in Inventory

Average Days in Inventory Formula:

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

Beginning Inventory:

currency units

Ending Inventory:

currency units

Cost of Goods Sold (COGS):

currency units per year

Average Days in Inventory (ADI):

Average Inventory:

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is Average Days in Inventory?

Average Days in Inventory (ADI) is a financial metric that measures the average number of days a company holds its inventory before selling it. It indicates how efficiently a company manages its inventory and turns it into sales.

2. How Does the Calculator Work?

The calculator uses the ADI formula:

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

Where:

\( ADI \) — Average Days in Inventory (days)
\( \text{Average Inventory} \) — (Beginning Inventory + Ending Inventory) ÷ 2 (currency units)
\( \text{COGS} \) — Cost of Goods Sold (currency units per year)

Explanation: The formula calculates how many days, on average, inventory items remain in stock before being sold. A lower ADI indicates more efficient inventory management.

3. Importance of ADI Calculation

Details: ADI is crucial for assessing inventory management efficiency, identifying potential cash flow issues, and comparing performance against industry benchmarks. It helps businesses optimize inventory levels and reduce carrying costs.

4. Using the Calculator

Tips: Enter beginning and ending inventory values in currency units, and COGS in currency units per year. All values must be valid (inventory ≥ 0, COGS > 0). Use consistent currency units for accurate results.

5. Frequently Asked Questions (FAQ)

Q1: What is a good ADI value?
A: Ideal ADI varies by industry. Generally, lower values are better, but compare with industry averages. Retail typically has lower ADI than manufacturing.

Q2: How does ADI differ from inventory turnover?
A: ADI is the inverse of inventory turnover. ADI = 365 ÷ Inventory Turnover. Both measure inventory efficiency but present it differently.

Q3: What causes high ADI?
A: High ADI can indicate slow-moving inventory, overstocking, poor demand forecasting, or declining sales.

Q4: How often should ADI be calculated?
A: Calculate ADI quarterly or annually for trend analysis. More frequent calculation helps identify inventory issues early.

Q5: Can ADI be too low?
A: Extremely low ADI may indicate stockouts, which can lead to lost sales. Balance is key between inventory efficiency and product availability.