Business Ratios Question:
List the reasons of high inventory days?
Answer:
The days sales in inventory is high when the inventory turnover is low.
Since inventory turnover is associated with sales and average inventory, changes in either sales or inventory can cause a high amount of inventory days.
For example, if a company has maintained its inventory quantities, but economic factors cause a significant drop in its sales, the company's inventory days will increase dramatically.
If a retailer increases its inventory in order to generate additional sales, but sales do not increase, there will also be an increase in the number of inventory days.
Since inventory turnover is associated with sales and average inventory, changes in either sales or inventory can cause a high amount of inventory days.
For example, if a company has maintained its inventory quantities, but economic factors cause a significant drop in its sales, the company's inventory days will increase dramatically.
If a retailer increases its inventory in order to generate additional sales, but sales do not increase, there will also be an increase in the number of inventory days.
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