The average days to sell inventory is computed by dividing:

The average days to sell inventory is computed by dividing:

a. 365 days by the inventory turnover ratio.

b. the inventory turnover ratio by 365 days.

c. net sales by the inventory turnover ratio.

d. 365 days by the cost of goods sold.

Answer: a. 365 days by the inventory turnover ratio.

Days of inventory outstanding or inventory days represents the number of days for which inventory is being held by the company on average before it is converted into sales. It is said to equal 365 divided by inventory turnover, and this latter is calculated as the cost of goods sold divided by average inventory. For instance, a facility’s Inventory Turnover Ratio of 5 means that its DSI would be 365 divided by control number 5 which gives us 73. A lower DSI is preferred, therefore a company selling its inventories faster will in the process; incur a lesser cost of storage and risks of depreciation.