The days inventory outstanding (DIO) metric measures the amount of time required by a company to sell off its inventory in its entirety.Inventory turnover is the number of times the firm's inventory is sold or used over a specific period. The stock turnover ratio is closely related to the days inventory outstanding (or “inventory days”). However, the context must also be closely considered, such as confirming that the time from customer order to delivery is on par or above that of industry comparables.įor instance, ordering less inventory might improve the turnover ratio, yet doing so is at the cost of missing out on potential revenue and the heightened risk of falling behind competitors with regard to order fulfillment and customer satisfaction. If the company’s inventory remains unsold, management might eventually decide to write down some of its inventory value to better reflect the fair value on the balance sheet (or all of the value could be wiped in a write-off). The build-up of excess inventory tends to be perceived negatively, as it often stems from overstocking and a poor understanding of customer spending behavior.
0 Comments
Leave a Reply. |
AuthorWrite something about yourself. No need to be fancy, just an overview. ArchivesCategories |