Ratios: Average Days in Inventory definitions Flashcards
Ratios: Average Days in Inventory definitions
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Average Days in Inventory Represents the typical number of days a unit remains in stock before being sold, reflecting how efficiently inventory is managed. Efficiency Ratio A metric used to assess how effectively a company utilizes its resources, such as inventory, to generate sales. Inventory Turnover Ratio Shows how many times inventory is sold and replaced during a period, calculated as cost of goods sold divided by average inventory. Cost of Goods Sold Total direct costs attributable to the production of goods sold by a company during a specific period. Average Inventory The mean value of inventory held, found by adding beginning and ending inventory balances and dividing by two. Beginning Inventory The value of inventory a company has at the start of an accounting period, used in calculating average inventory. Ending Inventory The value of inventory remaining at the end of an accounting period, essential for average inventory calculations. Benchmarking The process of comparing a company's performance metrics, like days in inventory, to industry standards or competitors. Industry Standards Commonly accepted performance metrics within a specific sector, used as reference points for comparison. Warehouse Duration Costs Expenses incurred from storing inventory, including rent and utilities, which increase with longer storage times. Numerator The top part of a fraction in ratio calculations, such as cost of goods sold in the inventory turnover ratio. Denominator The bottom part of a fraction in ratio calculations, such as average inventory in the inventory turnover ratio. Reciprocal Relationship A connection where one value increases as the other decreases, as seen between inventory turnover and days in inventory. Net Sales Total revenue from sales after deducting returns, allowances, and discounts, sometimes provided but not used in inventory turnover calculations.
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