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How can be calculated the average age of inventory?


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The average age of inventory shows how many days it takes to sell a piece of inventory.

The calculation formula is:

Average age of inventory = 365 / Inventory turnover


Average age of inventory = (Average inventory / Net sales) * 365

Inventory turnover = Net sales / Average inventory

Average inventory = (Beginning inventory + Ending inventory) / 2

Net sales is the Cost of goods sold

365 - days of the year


An example:
The retail company’s inventory value is $1 billion and Net sales are $5 billion. In this case, the Average age of inventory is (1000000 / 5000000) * 365 = 73 days.

The average age of inventory indicates how successful the retail business is. The lower the value of the average age of inventory, the more successful the retail company. And vice versa. If the average age of inventory high, it means that the company hasn't been very successful.

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