This shows how many days of inventory you have available.
How it's calculated
This metric divides the average value of your inventory by your direct costs for the selected period, then multiplies the result by the length of the selected period to translate that into days.
What it means
This shows how many days of inventory you have on hand. It’s important to have enough stock on hand to fulfill orders, so you don’t miss out on any sales. At the same time, carrying a bunch of extra inventory that you don’t need yet is poor cash management. It ties up resources that could be better used to fund growth activities or provide a cushion against a downturn.
Keep in mind that this is a rough measure, since it’s based on recent past performance. If you just had a big sale to move a lot of inventory, your direct costs in the selected period may not accurately reflect your inventory usage going forward.