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How much cash would we free up by holding fewer days of inventory?

Every day of stock you hold is a day of cost of goods sold tied up in cash. Cut the days and that cash comes back once. The yearly holding cost you no longer pay is a different measure and is shown apart, never added to the cash.

Your assumptions

Worked-example values — replace with yours

Cost of goods sold· per year

Days of stock today· average over 12 months

days

Average inventory ÷ cost of goods sold × 365.Target days of stock· average over 12 months

days

Holding cost of stock· per year

% of stock value

Capital, storage, handling, insurance, obsolescence. A planning default — use your own.

Inventory cash release · Estimated

$493K

cash released, once

Holding cost saved, shown apart: $99Kper year · not added to the cash

Value of one day of stock: $32,877

Realistic range. A cut of this size is often reachable by clearing slow stock and right-sizing safety stock on low-risk items.

Keep each item at its service target: release the cash from B, C and slow stock first, not from A items that must stay in stock.

This is an estimate. Check it on your own data.

This uses one average for the whole business. The cash really sits in a few product families and slow movers; seeing it by family on your own stock is what a workspace does.

Check it on my data →

Your inputs travel with you into the request, or into the free Margin Scan. Nothing is sent to ADEXMA until you submit a form.

The formula

cash per day of stock = cost of goods sold ÷ 365
cash released (once) = cash per day × (days today − target days)
holding cost saved (per year) = cash released × holding cost %

Worked example · the values pre-filled above

Cost of goods sold: $12,000,000 · Days of stock today: 90 days · Target days of stock: 75 days · Holding cost of stock: 20 % of stock value

$12.0M ÷ 365 = $32,877 of cost of goods sold per day.
Taking stock from 90 to 75 days releases 15 days: $32,877 × 15 = $493,151, once.
Holding cost saved = $493,151 × 20% = $98,630 a year — shown apart, never added to the cash.

Result: $493K once · $99K a year

What this assumes

The release is one-off: you get the cash once, then the saving continues.
Days of stock are measured on the same basis (cost of goods sold, not sales) today and at target.
Service levels are held — the cash must not come from items you cannot afford to run out of.
It is an estimate from your own inputs. Results from different tools overlap and must never be added together into one savings figure.

Sources

Brealey, R., Myers, S. & Allen, F., Principles of Corporate Finance (McGraw-Hill) — Days of inventory and working-capital arithmetic.
Silver, E., Pyke, D. & Thomas, D., Inventory and Production Management in Supply Chains (CRC Press, 4th ed.) — Inventory carrying cost and its components.

Questions people ask

How much cash would fewer days of inventory release?

Cost of goods sold divided by 365, times the days you remove. At $12.0M of COGS, cutting 15 days releases about $493,000, once.

Is the holding-cost saving part of the cash?

No. The cash comes back once; the holding cost is a yearly saving on that cash. The tool shows them apart so they are never added together.

What holding cost should I use?

Use your own cost of capital plus storage, handling, insurance and obsolescence. The 20% default is a planning placeholder, not a benchmark.

CashSafety stock and reorder pointHow much safety stock is enough, and when should we reorder?CashGMROIIs our inventory earning enough gross margin for the cash it ties up?

On your own data, Chloé picks up this finding in a workspace and your advisor confirms it. See what each plan adds →