Inventory Conversion Ratio Analysis

Inventory Conversion Ratio indicates the additional amount of borrowing that is available upon the inventory being converted into receivable.

Formula:
Inventory Conversion Ratio = (Sales x 0.5) / Cost of sales
Inventory Conversion Period = 365 / Inventory Turnover Ratio

Example 1:
Company ABC has an Inventory Turnover of 8.5, and therefore the Inventory Conversion Period = 365 / 8.5 = 42.9 days