medium · Corporate Credit Analysis
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 DIO, making the cycle appear slower.
- It will artificially deflate (lower) the DIO, making inventory management appear more efficient than it is.
- It is the preferred method for service-based industries with no physical inventory.
- It will have no effect because Revenue and COGS are perfectly correlated.
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