why the dsi matters
managing inventory levels is vital for most businesses and it is especially important for retail companies or those selling physical goods while the inventory turnover ratio is one of the best indicators of a company s level of efficiency at turning over its inventory and generating sales from that inventory the days sales of inventory ratio goes a step further by putting that figure into a daily context and providing a more accurate picture of the company s inventory management and overall efficiency dsi and inventory turnover ratio can help investors to know whether a company can effectively manage its inventory when compared to competitors a 2014 paper in management science does inventory productivity predict future stock returns a retailing industry perspective suggests that stocks in companies with high inventory ratios tend to outperform industry averages 1 a stock that brings in a higher gross margin than predicted can give investors an edge over competitors due to the potential surprise factor conversely a low inventory ratio may suggest overstocking market or product deficiencies or otherwise poorly managed inventory signs that generally do not bode well for a company s overall productivity and performance example of dsithe leading retail corporation walmart wmt had inventory worth 54 9 billion and cost of goods sold worth 490 billion for the fiscal year 2023 23 dsi is therefore while inventory value is available on the balance sheet of the company the cogs value can be sourced from the annual financial statement care should be taken to include the sum total of all the categories of inventory which includes finished goods work in progress raw materials and progress payments since walmart is a retailer it does not have any raw material works in progress and progress payments its entire inventory is comprised of finished goods 