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 inventory management efficiency and working capital requirements.

2. How Does the Calculator Work?

The calculator uses the DIO formula:

Where:

• \( Inventory \) — Value of inventory at the end of the period
• \( COGS \) — Cost of goods sold during the period
• \( Period \) — Number of days in the period (typically 365 for annual)

Explanation: The ratio shows how quickly inventory turns into sales. Lower DIO indicates more efficient inventory management.

3. Importance of DIO Calculation

Details: DIO helps assess inventory management efficiency, working capital needs, and potential cash flow issues. It's crucial for supply chain optimization and financial planning.

4. Using the Calculator

Tips: Enter inventory value and COGS in dollars (use same currency). Period is typically 365 days for annual calculation or 90 for quarterly.

5. Frequently Asked Questions (FAQ)

Q1: What's a good DIO value?
A: Ideal DIO varies by industry. Generally, lower is better, but compare with industry averages for context.

Q2: How does DIO differ from inventory turnover?
A: Inventory turnover shows how many times inventory is sold/replaced in a period, while DIO converts this to days.

Q3: Should I use average inventory?
A: For more accuracy, use average inventory if you have beginning and ending values, otherwise ending inventory is acceptable.

Q4: What causes high DIO?
A: High DIO may indicate overstocking, slow-moving inventory, or poor sales performance.

Q5: How can companies reduce DIO?
A: Strategies include just-in-time inventory, better demand forecasting, and improving sales channels.