Cash & working capital
Days inventory outstanding (DIO)
Days inventory outstanding is the average number of days a business holds inventory before it is sold.
DIO = (Inventory ÷ Cost of goods sold for the period) × Days in the period
Worked example
| Inventory at quarter end | $150,000 |
| Cost of goods sold for the quarter | $540,000 |
| Days in the quarter | 90 |
($150,000 ÷ $540,000) × 90 = 25 days
Why it matters
Inventory on the shelf is cash you have already spent. A rising DIO can mean slow sellers, over-buying or stock going obsolete, and it lengthens the time before that cash comes back.
Common mistakes
Where it misleads
Dividing by revenue instead of cost of goods sold, which understates DIO.
Using a single period-end balance in a seasonal business, where average inventory for the period gives a fairer figure.
Reading one blended DIO when a few slow products hide behind fast ones.
Related terms
Keep reading
- Cash conversion cycle (CCC)The cash conversion cycle is the number of days between paying for inventory or inputs and collecting cash from the customers who buy them.
- Cost of goods sold (COGS)Cost of goods sold is the direct cost of producing or buying what a business sold in a period, such as materials, stock purchases and direct labour.
- Days payable outstanding (DPO)Days payable outstanding is the average number of days a company takes to pay its suppliers after receiving their bills.
Stop calculating it by hand.
Dear CFO keeps your statements, forecasts and metrics current from the systems you already run.