Messing here with Days sales of inventory (DSI) ratio


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Everyone says,
DSI = average inventory ÷ cost of goods sold × 365

Now my problem is about avg inventory and cost of goods sold.

Does average inventory means average inventory that we had each day ? And does cost of goods sold means average cost of goods sold per each day ?

Please help mee ! Thanks very much
 
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Fidget

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Not a ratio I'm familiar with, but I expect average inventory will be opening inventory + closing inventory divided by 2. Cost of goods sold, will be the cost of goods sold figure rather than any sort of average of it.
 

Werner Reisacher

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You will find all the theoretical information on the topic under this ULR.

When it comes to the practical application of these ratios, focus on the definition: "within the same accounting period". You can calculate the turnover ratio or days of sales for each month or quarter or annually. Average meaning opening balance plus closing balance during the period you measure divided by 2. The only change in the conversion formula from the turnover ratio into days of sales is that you have to divide 30, or 90, instead of 360 days by the turnover ratio.
One other thing you have to be careful about is not to mix apples with bananas. Make sure that the value of the inventory does only include the "trading items" and not items that are not finished saleable products. (spare parts, tools, etc.) The same applies to the COGS. Depending on the companies activities and the costing system they use, the Cost of Sales line item may include costs that are directly related to the amount of product you sold during that period.
 
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From my view Average Inventory is calculated by dividing Opening and Closing Inventory by 2.
 

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