medium · Corporate Credit Analysis fsa
An analyst computes 'Days Inventory Outstanding' (DIO) using Revenue as the denominator instead of COGS.
How will this affect the resulting ratio?
- It will inflate the reported DIO figure, making the inventory turnover cycle look artificially slower.
- It will artificially deflate (lower) the DIO, making inventory management appear more efficient than it is.
- It is generally considered the textbook-preferred method for asset-light service firms carrying no physical inventory.
- It will have essentially no effect at all since Revenue and COGS move in near-perfect lockstep together over time.
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More Corporate Credit Analysis fsa practice
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