Question

Explain "Days of Inventory on Hand" and discuss the implications if the "Days of inventory on hand" show an increase annually

Days of Inventory on Hand

54.95

53.72

55.29

60.48

63.48

59.03

63.50

67.61

66.28

64.67

66.90

Answer 1

Days of Inventory on Hand (DOH) is a metric used to determine how quickly a company utilizes the average inventory available at its disposal. It is also known as days inventory outstanding (DIO) and is interpreted in a number of ways. Since it’s used to determine the number of days that the inventory remains in stock, the DOH value represents the inventory liquidity.

A high days inventory outstanding indicates that a company is not able to quickly turn its inventory into sales. This can be due to poor sales performance or the purchase of too much inventory. Having too much idle inventory is detrimental to a company as inventory may eventually become obsolete and unsellable. Holding excess inventory also negatively impacts cash flow.

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