Days Inventory Outstanding
Average number of days stock sits before being sold.
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Example
Turnover 6: DIO ≈ 61 days
How it works
Days Inventory Outstanding (DIO) converts an inventory turnover ratio into an easy-to-interpret time period. If inventory turns over T times per year, then each turn represents about 365/T days of stock being held before it is sold, so the formula gives the average number of days items remain in inventory. Lower DIO usually means inventory is moving faster, while higher DIO suggests stock is sitting longer and tying up cash.
When to use it
Use this when you want to assess how efficiently a business is managing stock, especially in retail, manufacturing, and wholesale settings. It is also useful for comparing inventory performance across periods or against competitors.
Worked example, step by step
Suppose a company has an inventory turnover ratio of 9.1. DIO = 365 / T DIO = 365 / 9.1 DIO = 40.1 So the company holds inventory for about 40 days on average before it is sold.
Common mistakes to avoid
- Using annual sales instead of the turnover ratio in the formula
- Forgetting that DIO is measured in days, not times per year
- Rounding too early and losing accuracy in the final result
Did You Know?
Dell famously cut days of inventory to single digits by building PCs only after orders arrived.
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