Inventory Holding Period & Carrying Cost Calculator
What is the true annual carrying cost of holding excess stock, and how much cash can be unlocked by optimizing inventory velocity?
Financial Inputs
Average book value of raw materials, work-in-progress, and finished goods.
Annual direct material, labor, and factory overhead expenditure.
Bank interest charged to finance inventory.
Warehouse lease rent, utilities, security, and racking maintenance.
Transit insurance, damage, material handling, and technological obsolescence.
Total Annual Inventory Carrying Cost
Your enterprise holds an average inventory of ₹400 Lakh, representing 81 days of sales (turnover ratio: 4.5x per year).
Days Sales of Inventory (DIO)
81
Inventory Turnover Velocity
4.5
Total Carrying Cost Rate (% p.a.)
18
Key Financial Takeaways
- Your enterprise holds an average inventory of ₹400 Lakh, representing 81 days of sales (turnover ratio: 4.5x per year).
- Total annual inventory carrying cost is ₹72 Lakh (18% of inventory value), comprising financing interest (₹42L), warehousing (₹16L), and shrinkage/obsolescence (₹14L).
- Compressing your inventory holding by 15 days will unlock ₹73.97 Lakh in immediate operational cash flow and generate recurring annual savings of ₹13.32 Lakh.
Frequently Asked Questions
Why is true inventory carrying cost typically 18% to 25%?
Most promoters only account for bank CC interest (10%–11%). However, when adding warehouse rent, climate control, handling labor, transit insurance, pilferage, and scrap/obsolescence, the true carrying cost rises to 18%–25% of the inventory value annually.
How does inventory velocity affect credit rating?
Credit rating agencies and banks monitor Inventory Turnover and DIO closely. Slow-moving stock reduces Drawing Power eligibility and triggers bank inspections for non-moving inventory provisions.
Calculators on this platform provide indicative mathematical estimations based on industry-standard financial appraisal models (including Tandon Committee Method II, Nayak Turnover Method, and standard compound amortisation).
They do not constitute a formal facility sanction, credit commitment, or legal advisory from SME PAISA or any partner banking/NBFC institution. Final terms, interest margins, security stipulations, and credit sanctions remain strictly subject to formal credit appraisal, audited balance sheet verification, CMA Data assessment, and risk committee approval by institutional lenders.
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