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What are the reasons for high inventory days?

Author:
Harold Averkamp, CPA, MBA

Definition of Inventory Days

I assume that inventory days is referring to the days’ sales in inventory. If so, then inventory days is also related to the inventory turnover ratio. For instance, when the inventory turnover is low, the days’ sales in inventory will be high. When the inventory turnover is high, the days’ sales in inventory will be low.

Examples or Reasons for High Inventory Days

Assume that a company maintains a constant quantity of items in inventory. If economic or competitive factors cause a sudden and significant drop in sales, the inventory days or days’ sales in inventory will increase.

Next, let’s assume that a retailer increases its inventory quantities for some new products and for some special promotions of existing products. If the sales do not increase, the inventory days or days’ sales in inventory will increase.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

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