1. What Is Days Inventory Outstanding?

Days Inventory Outstanding (DIO) is a financial ratio that measures the average number of days a company holds its inventory before selling it. It indicates how efficiently a company manages its inventory and is a key metric in working capital management.

2. How Does The Calculator Work?

The calculator uses the DIO formula:

Where:

• \( \text{Average Inventory} \) — The average value of inventory during the period ($)
• \( \text{COGS} \) — Cost of Goods Sold during the period ($)
• \( 365 \) — Number of days in a year

Explanation: The formula calculates how many days it takes for a company to turn its inventory into sales. A lower DIO indicates more efficient inventory management.

3. Importance Of DIO Calculation

Details: DIO is crucial for assessing inventory management efficiency, cash flow planning, and identifying potential obsolescence risks. It helps businesses optimize inventory levels and improve working capital management.

4. Using The Calculator

Tips: Enter the average inventory value and cost of goods sold in dollars. Both values must be positive numbers. The calculator will compute the number of days inventory is held before sale.

5. Frequently Asked Questions (FAQ)

Q1: What Is A Good DIO Value?
A: Ideal DIO varies by industry. Generally, lower values are better, but compare with industry averages. Retail typically has lower DIO than manufacturing.

Q2: How To Calculate Average Inventory?
A: Average Inventory = (Beginning Inventory + Ending Inventory) ÷ 2, or use periodic averages for more accuracy.

Q3: What If COGS Is Not Available?
A: If COGS is unavailable, use sales revenue, but this will give a different metric (Days Sales of Inventory).

Q4: How Does DIO Affect Cash Flow?
A: Higher DIO ties up more cash in inventory, reducing available working capital and potentially affecting liquidity.

Q5: Can DIO Be Too Low?
A: Extremely low DIO may indicate stockouts and lost sales opportunities. Balance is key for optimal inventory management.