The measure of how long a company holds inventory before selling it is called the:

• A. Accounts receivable turnover
• B. Gross profit margin
• C. Days sales of inventory (DSI)
• D. Inventory turnover ratio

Answer: (C)

Verified step by step guidance

1. Understand the concept: Days Sales of Inventory (DSI) measures the average number of days a company takes to sell its inventory during a specific period. It is a key metric for assessing inventory management efficiency.
2. Identify the formula for DSI: The formula is \( \text{DSI} = \frac{\text{Average Inventory}}{\text{Cost of Goods Sold (COGS)}} \times 365 \). This formula calculates the number of days inventory is held before being sold.
3. Break down the components: Average Inventory is typically calculated as \( \frac{\text{Beginning Inventory} + \text{Ending Inventory}}{2} \). COGS is found on the income statement and represents the direct costs of producing goods sold by the company.
4. Understand the relationship: A lower DSI indicates faster inventory turnover, meaning the company sells its inventory more quickly. Conversely, a higher DSI suggests slower turnover, which could indicate inefficiencies or overstocking.
5. Apply the formula: To calculate DSI, plug the values for Average Inventory and COGS into the formula and multiply by 365. This will give the average number of days inventory is held before being sold.