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How to calculate inventory conversion period?

how to calculate inventory conversion period

Inventory Turnover = Cost of Goods Sold/Average Inventory

Explanation of Inventory Turnover:
The Inventory Turnover measures the how well the company can manage to sell its inventory. Another way of saying this is how efficiently the company converts inventory into sales.

Importance of Inventory Turnover:
If the company can quickly sell its inventory, then the Inventory Turnover will be higher. Conversely, if the company cannot sell its inventory very well, then the Inventory Turnover will be low. You will have to watch this figure closely - if the Inventory Ratio climbs too high, then the company may be keeping too little inventory. This could cause lost profits due to customer orders that had to wait until inventory arrived

So you would have to know how much inventory you have now and how fast you are selling it, So subtract now from how much you sell over what period of time till its gone. So 100 pieces sold at 33/1/3 pieces a day over three days = 100 pieces so your inventory conversion is 3 days

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