In one sentenceThe number of days current inventory will last at the usual selling rate, that is, the average time goods stay before being sold.
Simply put
If you stopped buying today, how many days could you keep selling? That is the indicator. It is also the number of days your money stays locked up in goods.
It feeds into the cash conversion cycle together with days to collect from customers and days to pay suppliers; reducing it frees up cash without increasing your sales.
Worked example
The same store: average inventory of 150,000 SAR and an annual cost of sales of 600,000 SAR.
Average inventory ÷ cost of sales150,000 ÷ 600,000 = 0.25
× Days in the year0.25 × 365 = 91.25
Days inventory on handAbout 91 days
Formula: (Average inventory ÷ cost of goods sold) × 365
Don't confuse it with
Inventory turnoverTurnover is measured in times per year, and days on hand in days; each can be derived from the other.