CFA Level I · CFA Level I Exam · Working Capital and Liquidity
A manufacturer reports annual cost of goods sold of 1,460,000 and average inventory of 240,000. Assuming a 365-day year, its days of inventory on hand is closest to:
Days of inventory on hand is about 60 days. Inventory turnover is cost of goods sold divided by average inventory, or 6.083 times, and dividing 365 days by that turnover gives 60 days.
- A40 days
- B60 daysCorrect
- C90 days
Explanation
Inventory turnover = 1,460,000 / 240,000 = 6.083. Days of inventory on hand = 365 / 6.083 = 60.0 days. Using 90 days would come from a wrong turnover figure, and 40 days from dividing incorrectly.
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