Days Inventory Outstanding (DIO) measures how long your company holds inventory before it is sold or used, on average. It’s an important metric because it provides a general gauge of your inventory management efficiency. An increasing DIO may indicate slow-moving inventory, excess stock, or potential cash flow problems.
Formula: DIO = (Average Inventory ÷ Cost of Goods Sold) × Number of Days in Period
How to use the calculator
Enter the following information to calculate your DIO:
- Average Inventory: Use inventory from the balance sheet. Inventory may include raw materials, work-in-process, and finished goods. Add beginning inventory and ending inventory for the period, then divide by two.
- Cost of Goods Sold: Use cost of goods sold from the income statement for the same period.
- Number of Days in the Period: Typically a month, quarter, or year.
| Average Inventory | $ |
| Cost of Goods Sold | $ |
| Number of Days in Period | |
| Days Inventory Outstanding | 76.0 days |
A lower number indicates that inventory is moving more quickly. A high or increasing DIO may indicate slow-moving inventory, excess stock, or cash tied up in inventory for too long. Keep in mind that DIO varies by industry.
DIO is part of the cash conversion cycle. Consequently, a higher DIO can lengthen the time it takes to convert inventory into cash.
Note: This calculator is for educational purposes only and not intended as financial advice. Please consult a professional if you require financial advice.
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Marco Terry is the Managing Director of Commercial Capital LLC and has over two decades of experience in asset-based finance. He has worked with small and mid-sized companies across the United States, Canada, and Australia. Marco holds a Master of Science in Finance.