A ratio that measures the average number of days’ stock held by an organization. To obtain an accurate measure the following formula should be used for each commodity:(number of units in stock × 365)/stock usage in units per annum.
(number of units in stock × 365)/stock usage in units per annum.
The number of units in stock may be taken at the start or the end of the year or may be the average of both. Because the information required for the above ratio is only likely to be available from the internal management accounts, a different formula using final accounts figures is often used as an overall measure of stock levels:(value of stocks × 365)/sales or cost of sales per annum.
(value of stocks × 365)/sales or cost of sales per annum.
Again, the value of stocks may be taken at the start or the end of the period or may be an average of both. The second formula tends to be inaccurate and is an average of the turnover of all stocks. See also inventory turnover; rate of turnover.