What Is Days Inventory Outstanding (DIO)?
DIO tells you how many days it takes to sell through your average inventory. A key measure of inventory efficiency.
Key Takeaways
- DIO = (Average Inventory ÷ COGS) × Number of Days.
- Lower DIO means inventory is converting to cash faster.
- DIO is a component of the Cash Conversion Cycle alongside DPO and DSO.
The formula
Days Inventory Outstanding = (Average Inventory Value ÷ Cost of Goods Sold) × Number of Days in the period. If average inventory is £100,000, COGS is £400,000 over 365 days, DIO = (100,000 ÷ 400,000) × 365 = 91 days. This means it takes 91 days on average to sell through your stock.
DIO and the cash conversion cycle
DIO is one component of the Cash Conversion Cycle (CCC) — a measure of how long it takes to convert investment in inventory into cash receipts. CCC = DIO + DSO (Days Sales Outstanding) - DPO (Days Payable Outstanding). A lower CCC means the business converts inventory to cash more quickly and needs less working capital to operate.
What a high DIO signals
A high DIO indicates slow-moving inventory — stock is sitting on shelves longer than it should. This ties up working capital, increases storage costs, and raises the risk of stock becoming obsolete or requiring markdown. DIO trending upward over time is a warning signal that buying is outpacing sales, or that product-market fit is weakening.
Using DIO by SKU
Overall DIO is a business-level metric. The real power comes from calculating DIO at SKU or category level. A product with DIO of 200 days (selling through in under two times per year) may be consuming capital that would generate better returns if deployed in a product with DIO of 45 days. Regular SKU-level DIO review drives better buying decisions.