NISM Certifications · NISM-Series-XV: Research Analyst · Company Analysis - Financial Analysis
A firm has an average inventory of Rs 60 lakh, annual cost of goods sold of Rs 720 lakh and annual credit sales of Rs 900 lakh. Taking a 360-day year, its inventory holding period in days is:
The inventory holding period is 30 days. Inventory turnover is cost of goods sold of Rs 720 lakh divided by average inventory of Rs 60 lakh, which is 12 times, and 360 divided by 12 gives 30 days. Sales is not the correct base.
- A30 daysCorrect
- B24 days
- C48 days
- D12 days
Explanation
Inventory turnover = COGS / average inventory = 720/60 = 12 times. Holding period = 360/12 = 30 days. Using sales of 900 gives turnover of 15 and 24 days, which is the wrong base.
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