Performance Ratios

Inventory Holding Period

Inventory Holding Period is the ratio between a business' average inventories and cost of sales, expressed as a number of days. It shows many days, on average, it takes to sell all their inventory.

\[ Inventory\;Holding\;Period = \frac{Average\;Inventory}{Cost\;of\;Sales} * 365 \]

Where:

• \(Average\;Inventory = \frac{Opening\;Inventory + Closing\;Inventory}{2}\)

Trade Receivables Collection Period

Trade Receivables Collection Period is the ratio between a business' trade receivables and revenue, expressed as a number of days. The lower the value, the quicker they are at receiving payment from their trade customers.

\[ Trade\;Receivables\;Collection\;Period = \frac{Trade\;Receivables}{Revenue} * 365 \]

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