Metric Explainer: Inventory Days
How many days goods sit in storage before being sold. Lower means the company sells its products faster. "Inventory Days batata hai ki company ka maal godown...
Simple definition
How many days goods sit in storage before being sold. Lower means the company sells its products faster.
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"Inventory Days batata hai ki company ka maal godown mein kitne din padha rehta hai bechne se pehle. 30 days matlab 1 mahine mein bikta hai."
Why it matters
- Working capital efficiency — inventory sitting in a warehouse is cash locked up
- Demand indicator — rising inventory days may signal weak demand
- Part of Cash Conversion Cycle — directly impacts how fast cash cycles through the business
- Obsolescence risk — long-sitting inventory may lose value (especially in tech, fashion)
Formula
Inventory Days = (Inventories / Cost of Goods Sold) × 365
Why COGS, not Revenue?
Inventories are valued at cost, so the denominator should also be at cost (COGS), not revenue. Using revenue overstates inventory efficiency.
Good range — by sector
| Sector | Lean | Average | Bloated |
|---|---|---|---|
| FMCG | < 30 days | 30–60 days | > 75 days |
| Auto | < 20 days | 20–45 days | > 60 days |
| Pharma | < 60 days | 60–90 days | > 120 days |
| Chemicals | < 45 days | 45–75 days | > 90 days |
| Jewellery | < 200 days | 200–300 days | > 350 days |
| IT/Services | N/A | N/A | N/A |
Jewellery is an outlier
Jewellery companies (Titan, Kalyan) carry 200–300 days inventory because gold itself is the product and is a store of value. This is normal for the sector.
Common mistakes
Mistakes to avoid
- Not using COGS — Using revenue as denominator underestimates inventory days
- Comparing across sectors — 60 days is great for pharma but bad for FMCG
- Seasonal businesses — Festive season inventory build-up is normal (Q2 for consumer companies targeting Diwali)
- Inventory write-downs — Companies sometimes write down slow-moving inventory, which improves inventory days but is a loss
Detecting demand problems
| Pattern | Signal |
|---|---|
| Inventory days rising + Revenue flat | Demand weakness — goods not selling |
| Inventory days rising + Revenue growing | Building stock for expansion — possibly okay |
| Inventory days falling + Revenue growing | Excellent — selling faster despite growth |
| Inventory days falling + Revenue falling | Company cutting production — defensive mode |
Red flags
- Inventory days rising 10%+ annually — demand issue or production overplan
- Finished goods inventory growing faster than raw materials — product isn't selling
- Large "work in progress" increase — production bottleneck
- Inventory provision/write-down increasing — quality or demand problem
Related metrics
- Receivable Days — Collection speed
- Payable Days — Supplier payment speed
- Cash Conversion Cycle — Combined working capital metric
- Working Capital — Inventory is usually the largest component