How this calculator works
Days inventory outstanding answers a simple question: at the current rate of sales, how many days of stock are on hand? It converts the inventory balance into days by comparing it with the cost of goods sold for the period. A low figure means stock moves quickly and ties up little cash; a high figure means cash is sitting on shelves and may signal weak demand or overbuying. The ratio uses cost rather than selling price because inventory is carried at cost. Use the average of opening and closing inventory to smooth seasonal swings, or enter a single average balance if that is all you have.
Formula
Days inventory outstanding = average inventory / cost of goods sold × days in the accounting period. Average inventory is the mean of opening and closing inventory. Rearranged, average inventory = DIO × COGS / period and COGS = average inventory × period / DIO.
Worked example
Average inventory of $120,000 against $600,000 of cost of goods sold over 365 days gives 120,000 / 600,000 × 365 = 73.0 days. The same business would need $200,000 of stock to hold 121.7 days at the same rate of sales.
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Frequently asked questions
What counts as a good DIO?
It depends on the product. Fresh food may turn in days, while jewellery or heavy machinery can take hundreds of days. Compare with close competitors and with the trend over time. A rising DIO usually deserves investigation.
Should I use 365 or the number of trading days?
Use the same basis as the cost of goods sold figure. Annual COGS with 365 calendar days is standard. If you measure a shorter period, use the number of days in that period so the answer stays a day count.
How does DIO relate to inventory turnover?
They are reciprocals. Inventory turnover is COGS divided by average inventory, and DIO is the period length divided by turnover. A turnover of 5 times a year is a DIO of 73 days on a 365 day year.