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:

• \( Inventory \) — Value of inventory (in dollars)
• \( COGS \) — Cost of goods sold (in dollars)
• \( 365 \) — Number of days in a year

Explanation: The formula calculates how many days it would take to sell the current inventory based on the company's cost of goods sold.

3. Importance of DIO Calculation

Details: DIO helps businesses understand their inventory turnover and cash conversion cycle. A lower DIO typically indicates more efficient inventory management, while a higher DIO may suggest overstocking or slow-moving inventory.

4. Using the Calculator

Tips: Enter the total value of inventory and annual cost of goods sold in dollars. Both values must be positive numbers.

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 does DIO differ from inventory turnover?
A: Inventory turnover shows how many times inventory is sold and replaced in a period, while DIO converts this to days for easier interpretation.

Q3: Should DIO be calculated quarterly or annually?
A: Annual calculation is standard, but quarterly can provide more timely insights for inventory management.

Q4: What causes high DIO?
A: High DIO can result from overstocking, poor demand forecasting, obsolete inventory, or declining sales.

Q5: How can companies reduce DIO?
A: Strategies include improving demand forecasting, implementing just-in-time inventory, and optimizing supply chain management.