Which financial metric reflects how many days a company takes to sell its inventory?

The financial metric that accurately reflects how many days a company takes to sell its inventory is known as Days in Inventory. This measure provides insight into inventory management and efficiency by determining the average number of days that inventory remains in stock before it is sold.

To calculate Days in Inventory, one typically uses the formula:

Days in Inventory = (Average Inventory / Cost of Goods Sold) x 365

This calculation helps businesses assess how effectively they are managing their inventory levels, allowing for adjustments in purchasing and production strategies as needed. The lower the number of days, the more efficient the company is at converting inventory into sales, which is preferable for maintaining cash flow and minimizing holding costs.

Other choices, while related to inventory and sales, measure different aspects of financial performance. For instance, the Average Collection Period focuses on how long it takes for a company to collect cash from credit sales, Receivables Turnover indicates how effectively a company collects its outstanding receivables, and Inventory Turnover measures how often inventory is sold and replaced over a period. These metrics serve different purposes and do not directly represent the time it takes to sell inventory.