What is Days Inventory Outstanding (DIO)?
How long inventory sits before selling - a key driver of how much cash is tied up in stock.
Days Inventory Outstanding (DIO): definition
DIO turns the inventory-turnover ratio into an intuitive number of days. Every day inventory sits unsold is cash locked in stock and at risk of obsolescence or spoilage. DIO is one of three components of the cash conversion cycle, alongside days sales outstanding and days payable outstanding, and reducing it frees cash without any change in sales.
Days inventory outstanding
DIO = (Average Inventory ÷ Cost of Goods Sold) × 365
Equivalently, 365 ÷ inventory turnover. Lower DIO means faster-moving inventory; higher DIO means slower-moving or overstocked inventory.
How Fintra handles it
Fintra computes DIO from inventory and cost of goods sold on the same ledger, and rolls it into the cash conversion cycle so you see how inventory, receivables, and payables combine to lock up or free cash. Trends flag when inventory is building faster than sales, before it becomes stranded cash.
- DIO computed from average inventory and COGS
- Feeds the cash conversion cycle with DSO and DPO
- Trend alerts when inventory days rise relative to sales
Worked example
Frequently asked questions
What is a good days inventory outstanding?
Lower is generally better because it means inventory sells quickly and ties up less cash, but the right level varies by industry - perishable goods need very low DIO, while durable or seasonal products naturally run higher. Compare to your own history and industry peers.
How does DIO relate to inventory turnover?
They are inverses of the same idea. DIO is 365 divided by inventory turnover. A turnover of 6 times a year equals a DIO of about 61 days. DIO expresses the result in days, which many find easier to interpret.
How do you reduce days inventory outstanding?
Improve demand forecasting, order in smaller and more frequent batches, discontinue slow-moving SKUs, and tighten supplier lead times. The goal is matching stock to demand so less cash sits in inventory without risking stockouts.
Why does DIO matter for cash flow?
Because inventory is cash you have spent but not yet recovered. High DIO means more cash trapped in stock, lengthening the cash conversion cycle. Reducing DIO releases cash you can use elsewhere without needing to sell more.
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