How much cash sits in stock as you change the target days of inventory, with your safety-stock buffer added throughout. More days of cover means more working capital frozen on the shelf.
Target days
Base inventory
Plus safety stock
Total investment
30
24,000.00
5,000.00
29,000.00
45
36,000.00
5,000.00
41,000.00
60 ◀
48,000.00
5,000.00
53,000.00
90
72,000.00
5,000.00
77,000.00
Estimates only — not financial, tax, or professional advice.
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What it calculates: Inventory Investment Needed, Daily COGS, Days of Inventory.
Days of cover converts directly into money that leaves the bank
Choosing to hold 60 days of stock rather than 30 is not a warehousing preference, it is a decision to tie up an extra month of cost of goods in stock indefinitely. This converts the cover target into that figure.
For a growing business it is the number that explains why profit and cash diverge. Growth requires more stock, so a profitable month can still consume cash — and the faster the growth, the wider that gap.
Inventory investment is what you paid, not what you will sell it for
The input is cost of goods sold, because that is what the stock cost you. Using revenue instead overstates the investment by the whole gross margin, which on a typical ecommerce business is a factor of two or three.
It is a common error precisely because sales figures are the ones people have to hand. The number needed here is the cost side, from the same period.
Lead time plus a buffer, not a round number
A sensible cover target starts from supplier lead time and adds safety stock and a review cycle. A 30-day lead time with a fortnight of buffer implies around 45 days, and a target of 90 needs a reason beyond it sounding safe.
Every extra day of cover is working capital the business cannot use elsewhere, priced at the carrying cost rate. Rounding the target up because it feels comfortable is a real cost with no offsetting benefit.
Stock has to be paid for before it sells
Once you know the investment, the next question is where the cash comes from: supplier credit, a facility, or retained profit. Supplier payment terms are the cheapest lever — 60-day terms on a 45-day cover means the stock is sold before the invoice is due.
Where terms are short and cover is long, the business funds the gap itself. That gap, not the profit margin, is usually what limits how fast a physical-product business can grow.
Frequently Asked Questions
Why divide monthly COGS by 30?
To convert a monthly figure into a daily one so it can be multiplied by target days. Using 30 days is a simple convention; you can adjust the target days to fine-tune the result for your selling pattern.
What is safety stock and why add it?
Safety stock is a buffer held against demand spikes and supply delays. Adding its value ensures the investment covers not just average demand but the cushion that prevents stockouts when things vary.
How many days of inventory should I hold?
It depends on supplier lead time, demand variability, and cash. Many stores target somewhere between 30 and 90 days; longer cover reduces stockout risk but ties up more cash and raises obsolescence risk.
Why does inventory tie up so much cash?
Because you pay suppliers before customers pay you. The investment sits in stock until it sells, which is why a growing, profitable store can still be short of cash — its profits are locked in inventory.
How can I reduce inventory investment?
Hold fewer days of stock, negotiate shorter supplier lead times so you can reorder closer to demand, and trim slow-moving SKUs. Each lowers the cash locked in inventory without necessarily hurting sales.
Does this include warehousing costs?
No. It estimates the cash value of the stock at cost. Storage, insurance, and obsolescence are additional carrying costs best estimated with an inventory carrying cost calculator.
Sources & References
Figures on this page are checked against primary, authoritative sources. Links open in a new tab.
Monthly COGS is spread evenly to give a steady daily cost of goods.
A month is treated as 30 days for the daily figure.
Safety stock is held as a fixed-value buffer on top of the target days.
Inventory is valued at cost, not retail price.
Where it stops
Demand is rarely flat, so the days-of-cover figure is an average rather than a guarantee.
It does not account for supplier lead times or minimum order quantities.
Seasonal businesses need more stock before peaks and less after them than a flat target implies.
It values inventory at cost and ignores storage, insurance, and obsolescence costs.
Related Calculators
Inventory Carrying CostThe annual and monthly cost of holding stock — capital, storage, service and risk, not just rent.
Working CapitalCurrent assets minus current liabilities, measured against what your cash conversion cycle actually requires.
DIODays of stock on hand against cost of goods sold, with the turnover it implies and the revenue-denominator mistake priced beside it.
Economic Order QuantityThe order size that minimises ordering and holding cost together, with the total that results.
Cash Conversion CycleWork out the days between paying suppliers and being paid by customers, on one consistent day basis, then see what each day is worth in cash.
DSODays sales outstanding by the simple ratio and by countback, with the floor your payment terms set separated from genuine lateness.
DPODays payable outstanding on COGS or on derived purchases, with the annualised cost of skipping an early-payment discount.
Daily Sales TargetA monthly revenue target broken into daily revenue, orders a day, and the sessions those orders need.
Results are estimates for planning and analysis based on the figures you enter. They are not accounting, tax, or financial advice — verify with your own records and a qualified professional before making decisions.
Built and maintained by Jay Sudha, who runs a rice mill and trading business in Kashipur, India, and works with pricing, margins, working capital and bank credit as part of it.
Published the calculator with its formula, worked example, assumptions, limitations and a bespoke guide, and added an automated formula test suite covering it.
Tested the capital a target days-of-cover absorbs from monthly cost of goods, with safety stock value added on top.
Tested that doubling the target days doubles the cycle stock investment while leaving the safety component untouched.
Frequently Asked Questions now show on the page: 6 answers, checked in a page-by-page audit.
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