Question

If days inventory is 26.76 in year one, 26.33 in year two, 24.29 in year three,...

If days inventory is 26.76 in year one, 26.33 in year two, 24.29 in year three, 26.40 in year four and 24.44 in year five, what is the trend?

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Answer #1

Day inventory = 365 days / Inventory turn over ratio

When inventory turn over ratio has been increased, simultaneously day inventory has been decreased and vise versa.

Increased inventory turn over ratio is good, because it reduces the blockage of working capital in inventory . It means decrease in inventory days is also good for the company. If company has a upward trending inventory turn over ratio it provides a downward trending inventory days.

As per the given question, inventory days for the first three years having a downward trend (26.76 > 26.33 > 24.29) . But in forth year it has moved up (26.40) and finally in fifth year it has been reduced again (24.44) . So, it can be classified as a mixed trend.

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