Calculate Days Inventory Outstanding (DIO), the average number of days your inventory sits in stock before it's sold.
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Days Inventory Outstanding = (Average Inventory ÷ Cost of Goods Sold) × 365, where Average Inventory is (Beginning Inventory + Ending Inventory) ÷ 2. It tells you, on average, how many days of stock you're carrying before it sells.
For example, an average inventory of 50,000 against 500,000 in annual COGS gives a DIO of 36.5 days.
Fewer days inventory outstanding generally means cash is tied up in stock for less time, freeing it up for other uses. A rising DIO over time can be an early signal of slowing sales or overstocking, worth investigating alongside turnover ratio and working capital.
They're reciprocals of each other, scaled by 365. Turnover tells you how many times inventory cycles per year, while DIO tells you how many days that cycle takes. Both come from the same underlying figures.
It depends heavily on the industry. Perishable-goods retailers often aim for single-digit DIO, while manufacturers of durable goods commonly run 60-90 days or more. Compare against similar businesses rather than a fixed target.
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