Which formula is used to calculate the Inventory Holding Period?

The formula for calculating the Inventory Holding Period is given by inventory divided by the cost of sales (COS), multiplied by 365 days. This formula helps businesses determine the average number of days that inventory is held before it is sold.

By using this calculation, a company can gain insights into how efficiently it is managing its inventory. A shorter inventory holding period suggests that a company is able to sell its inventory quickly, which can indicate strong sales performance or effective inventory management. Conversely, a longer period may indicate overstocking or declining sales, which could lead to cash flow issues.

For the other options, they pertain to different financial metrics. For instance, the first option is related to a profitability ratio, while the third involves trade payables management. The last option focuses on liquidity rather than inventory management. Hence, these formulas do not apply to the calculation of the Inventory Holding Period.