1. What is Days Inventory Outstanding (DIO)?

Days Inventory Outstanding (DIO) is a financial ratio that measures the average number of days a company holds its inventory before selling it. It's an important metric for assessing inventory management efficiency.

2. How Does the Calculator Work?

The calculator uses the DIO formula:

Where:

• Average Inventory — The average value of inventory during the period
• 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.

3. Importance of DIO Calculation

Details: DIO helps businesses understand their inventory management efficiency. A lower DIO typically indicates better inventory management, while a higher DIO may suggest overstocking or slow-moving inventory.

4. Using the Calculator

Tips: Enter the average inventory value and cost of goods sold in dollars. Both values must be positive numbers for accurate calculation.

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 for meaningful analysis.

Q2: How often should DIO be calculated?
A: Typically calculated quarterly or annually, but more frequent monitoring can help identify inventory issues early.

Q3: What if COGS is zero or negative?
A: The calculation becomes invalid. COGS must be a positive number for meaningful DIO calculation.

Q4: How does DIO differ from inventory turnover?
A: DIO shows days to sell inventory, while inventory turnover shows how many times inventory is sold and replaced in a period.

Q5: Can DIO be too low?
A: Extremely low DIO might indicate stockouts or insufficient inventory, which could lead to lost sales.