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Business Definition for: average age of inventory
Dictionary of Accounting Terms
average age of inventory

number of days an average inventory item takes to sell:

Average Age of Inventory = Average Inventory
Cost of Goods Sold		 x 365 days

For example, assume that average inventory is $47,500 and cost of goods sold is $500,000. The average age of inventory is ($47,500/$500,000) x 365 days = 34.7 days. See also days to sell inventory
Related Terms:
days to sell inventory

ratio measuring the number of days inventory is held. As a general rule, the longer inventory is held, the greater is its risk of not being sold at full value. This ratio is crucial in the case of inventory that is perishable or prone to obsolescence, such as high technology and fashion items. Inventory also involves an opportunity costof funds. Days to sell inventory is one of the components in determining a company's operating cycle. Assume an inventory turnoverof 10 times. This means that the number of days inventory is held equals:

360
10		 = 36 days
Referring Terms:
days to sell inventory
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