Days Inventory Outstanding

DIO measures how quickly a company turns its stock into sales. It is usually calculated by dividing inventory by cost of goods sold and multiplying by the number of days in the period.

For example, a company with inventory of 300,000 and annual cost of goods sold of 1.5 million has a DIO of 73 days. On average, items sit in stock for about ten weeks before being sold.

A lower DIO generally means inventory is moving quickly, tying up less cash and reducing the risk of goods becoming damaged, outdated or unsellable. A higher DIO can indicate slow sales, overproduction or poor stock management.

What counts as a good DIO depends heavily on the industry. A grocery retailer selling perishable food might hold inventory for only a couple of weeks, while a jewellery shop or aircraft manufacturer may hold it for many months.

DIO is the inverse of inventory turnover. A DIO of 73 days corresponds to inventory turning over about five times a year. It is also one of the components of the cash conversion cycle.