DIO (Days inventory outstanding)
#28GUIDING QUESTION
How many days do you hold stock before selling it?
DIO (Days Inventory Outstanding): measures inventory efficiency.
01.What it is
DIO shows how many days, on average, a company takes to sell its inventories from the moment it acquires them. A low value reflects agile inventory turnover and a lower risk of obsolescence; a high value suggests excess stock or slow sales.
02.Component masses
- Average inventories
- Cost of sales
03.Formula
MAIN FORMULA
DIO (inventory days): (Average inventories ÷ Cost of sales) × 365(days)
04.Interpretation
- ↓ DIO → fast inventory turnover and efficiency in production and sales.
- ↑ DIO → excess stock, obsolete products or low demand.
05.Related to
- Cash conversion cycle
- Liquidity
- DSO
- DPO