Calculate Days On Hand Inventory

Days On Hand Formula:

\[ DOH = \frac{\text{Average Inventory}}{\text{COGS}} \times 365 \]

DOH (Days On Hand):

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1. What is Days On Hand Inventory?

Days On Hand (DOH) is a financial ratio that measures the average number of days that inventory is held before being sold. It indicates how efficiently a company manages its inventory levels and helps in assessing inventory turnover performance.

2. How Does the Calculator Work?

The calculator uses the Days On Hand formula:

\[ DOH = \frac{\text{Average Inventory}}{\text{COGS}} \times 365 \]

Where:

\( DOH \) — Days On Hand (days)
\( \text{Average Inventory} \) — Average inventory value in dollars
\( \text{COGS} \) — Cost of Goods Sold in dollars per year

Explanation: This formula calculates how many days worth of inventory a company has on hand based on its current sales rate.

3. Importance of DOH Calculation

Details: DOH is crucial for inventory management, cash flow optimization, and identifying potential inventory obsolescence. A lower DOH indicates faster inventory turnover, while a higher DOH may suggest overstocking or slow-moving inventory.

4. Using the Calculator

Tips: Enter average inventory in dollars and COGS in dollars per year. Both values must be positive numbers. Average inventory is typically calculated as (Beginning Inventory + Ending Inventory) ÷ 2.

5. Frequently Asked Questions (FAQ)

Q1: What is a good DOH value?
A: Ideal DOH varies by industry. Generally, lower values (30-60 days) are better, but this depends on the business type, seasonality, and supply chain characteristics.

Q2: How is DOH different from inventory turnover?
A: DOH shows inventory in days, while inventory turnover shows how many times inventory is sold and replaced in a period. DOH = 365 ÷ Inventory Turnover.

Q3: What causes high DOH?
A: High DOH can result from overstocking, slow sales, poor demand forecasting, or carrying obsolete inventory that doesn't sell quickly.

Q4: How can I reduce DOH?
A: Improve demand forecasting, implement just-in-time inventory systems, negotiate better terms with suppliers, and regularly review inventory for slow-moving items.

Q5: Should DOH be calculated for all inventory types?
A: For best results, calculate DOH for different product categories separately, as turnover rates can vary significantly across product lines.