Days of Inventory turnover should be on 365 or 360?

CFA Level I FRA
#1

Hey Guys,

I am checking a financial model.

Basically for forecasting COGS. We have taken an assumption that Inventory days not to exceed 5 days and Number of working days in a year is 248. So while forecasting our Inventory should be something like:

No. of Inventory Days = 365 * Avg Inventory / Purchases.

Since we have the No. of Inventory days fixed at 5, so we need to know the closing inventory for the year that would be 5/365 * Purchases.

But the modeler here has made an assumption that the company will only operate for 248 days in a year based on the public holidays and weekends, so the actual cal. is based out of 248, which I think is wrong and overstates # of Inventory days.

Now my question can companies decide to forecast this on 365 or on the number of working days that is 248?

Thanks.

#2

Use 365 or 366 depending on calendar year.

#3

Some hints…Do you have inventory only on days of business? Is 5 days on inventory business days? …

#4

Yaaa…the company who has done it…has taken it on days of business operation. Is that even right?