Management uses Average Inventory Period Formula to find, which products are selling fast and which are stagnant. If the result of the formula is in the low ratio t means that the products of the company sell in a very short time. If the result given by this formula is high then the company take much time to sell its products.
Average Inventory Period Formula
Average Inventory Period Formula is calculated by dividing the number of days in period by inventory turnover of the company.
Average Inventory Period= Number of Days in Period/Inventory Turnover
Period mention in the above formula may be of 30 days, 6 months. or 1 year. Period depend on the policies of the company.