FREE Inventory Period Calculator
Estimating the inventory period is beneficial for a business to determine how fast it can sell its inventory. If you are in the field of accounting or finance, it is vital to get familiar with the inventory period and how to analyze it.
Calculating the inventory period or the days of inventory can be super-easy if you use a free tool. With the free inventory period calculator, you can get the result instantly. All you have to do is collect the data for the annual cost of goods sold and average inventory. Now enter the value into the respective box to get the result instantly. Yeah, that simple it is!
What is the inventory period?
The inventory period is the average time you can keep your inventory before selling it into the market. By measuring the inventory period of a business, you can determine its operations as well as its finances. As it is directly related to how quickly a company can sell the inventory to earn money.
A low period in inventory can indicate the business is operating successfully, as it can be able to release the inventory fast. On the other hand, if you find the conversion through sales is not good, in that case, try to understand the areas you need help with. Like if your business needs to adopt some changes or requires remodeling the brand image.
Inventory period formula
There is a basic formula to measure the inventory period for your company.
To calculate the inventory period, you need three data on average inventory, period length, and cost of goods sold.
So, the formula is = (Average inventory / Cost of goods sold) x Period Length.
- Average inventory: It is the number of units a company can keep in the inventory.
- Cost of products sold: It is the cash you need to produce the goods for your inventory.
- Period length: It is the time period you want to estimate the inventory period for. The period length often calculates as one year.
How do you calculate inventory period?
Calculating the inventory period is pretty straightforward. You just need to collect the data and put it into the formula to find out the result. Here are the simple steps to follow,
Calculate average inventory
Analyzing the average inventory is the first thing you need to know before calculating the inventory period for a company. For this, add the initial and end value of the number of inventory units a business keeps for a particular period. Now, divide this value by two to get the average.
Suppose a company sells organic food. Now, the initial inventory for that company is $12,000, and the ending inventory is $ 8,000. So, the average value will be ($12,000 + $8,000) /2 = $10,000
Estimate the cost of goods sold
For this, you need the value of the inventory at the initial period and the cost of goods. The cost of goods will include all the costs like material and labor costs and all other bills that the company needs to pay to produce goods. Now add these two data, which means the initial inventory and the cost of goods. Then, subtract the ending inventory from it to get the cost of goods sold.
So, if the organic food-selling company’s cost of goods is $4,000, the cost of goods sold will be ($12,000 + $4,000) – $8,000 = $8,000.
The period length
Select the period length you want to estimate the inventory period for. Although, always remember your period length will only be in numbers. Like, if you want to calculate the inventory period for two months (April to May), in that case, the period length will be 61 days.
In most cases, a company estimates the inventory period for one year (365 days).
Divide the value
Now, you have all the data. So, just divide the average inventory by the costs of goods sold.
So, the organic food-selling company’s average inventory is $10,000, and the cost of goods sold is $8,000. So, if you calculate, the results will be around 1.25.
Multiply the value
In the last part of the calculation, multiply the value you get by dividing the average inventory and cost of goods sold by the period length.
You can multiply 365 days (period length for the company) by 1.25 ( the data we get from the previous calculation). So, the result will be 456.25 days. The result is pretty high, which means the organic food-selling company needs to improve its operations.
Inventory period example
Suppose you run a grocery shop and sell kids’ toys. Now the average inventory is $2,000 for one year, and the cost of goods sold is $10,000. So, what will be the inventory period of that store in one year?
You can simply put the values into the formula. That is, ( $2,000 / $10,000) x 365 = 73. The inventory period is high for this shop. So, it needs to adopt new strategies to become more efficient.
How to use an inventory period calculator?
Calculating the inventory period manually by collecting all the data can consume your time and energy. But if you use a calculator, the whole thing will be pretty easy for you that will give you accurate results within a minute.
You just need to enter the data of the annual cost of goods sold and the average inventory. Now just put the value into the box and click the calculate button. It will show you the inventory period for your company. You can click the reset button and enter new values to get new results.
Why is the inventory period important?
The inventory period is important for determining the overall performance and efficiency of a company. A low inventory period means the company is operating successfully on the market and can able to convert the stock into selling quickly to earn cash. While a high inventory period is an indication of less efficiency of a company. And they need to focus on their gaps to improve the selling of their service.
Inventory period calculator FAQs
What is the average inventory period?
The average inventory period determines the approximate number of days that a company requires to cycle the inventory it has. An increasing average determines the company takes a long time to sell the products, while a decreasing average indicates the company can quickly convert its stocks into selling goods. Average inventory period (number of days in period / inventory turnover).
Is the EComBusinessHub inventory calculator free to use?
Yes, absolutely. You can visit the website to calculate the inventory period for your company without spending a penny on it. Just put the value of the annual costs of goods sold and the average inventory to find the result instantly.
Is the inventory period calculator useful for drop shippers?
Yes, the drop shippers also use the inventory period calculator for their business. It is helpful to identify how their dropshipping business is operating in the market. That ultimately helps you determine whether you should continue your drop shipping business or not.