Importance of Days Sales Inventory to Businesses
1. Information on Cash Flow and Profits: Cash flows and profits will be higher in a more liquid firm. The company’s daily sales in inventory are also of interest to management as they show how quickly inventory moves, which is crucial when accounting for the costs associated with maintaining and storing inventory.
2. Controlling Other Expenditures: Improper management of the carrying cost of inventory, which encompasses rent, insurance, storage charges, and other costs associated with inventory keeping, can have a direct effect on profit margin.
3. Understanding of Inventory Holding Costs: potential costs are wasted since the longer inventory is held, the longer its monetary equivalent cannot be utilized for other purposes. DSI helps the management understand such costs and take corrective actions.