Financial Management
Model inventory and supplier days
What you will learn
Estimate how working-capital days translate to cash.
Cash tied up in stock ≈ inventory days × daily cost of sales
Use cost of sales for an inventory days proxy and credit purchases for payable days when available. Convert a change in days using its own daily cost or purchases base. Consider seasonality, lead times and supplier terms. A lower inventory balance can release cash but increase stockout risk. A fictional Rajkot trader reduces stock by four days at ₹2 lakh daily cost of sales, releasing approximately ₹8 lakh.
A fictional Rajkot trader reduces stock by four days at ₹2 lakh daily cost of sales, releasing approximately ₹8 lakh.
Use cost of sales for an inventory days proxy and credit purchases for payable days when available. Convert a change in days using its own daily cost or purchases base. Consider seasonality, lead times and supplier terms. A lower inventory balance can release cash but increase stockout risk. A fictional Rajkot trader reduces stock by four days at ₹2 lakh daily cost of sales, releasing approximately ₹8 lakh.
Which denominator best estimates trade payable days when available?