Formula to calculate average inventory period:

Average Inventory Period = (inventory x 365 days) / cost of sales.

Average inventory period definition and explanation:

The average inventory period is also referred to as Days Inventory and Inventory Holding Period.

This ratio calculates the average time that inventory is held.

Individual inventories should be looked at to find areas where the inventory, and inventory holding period, can be reduced.

The average inventory period should be compared to competitors.

The average inventory period is included in the the financial statement ratio analysis spreadsheets highlighted in the left column, which provide formulas, definitions, calculation, charts and explanations of each ratio.

Average Inventory Period Ratio