Days Inventory Outstanding

Days Inventory Outstanding, defined also as Days of Sales Inventory, indicates how many days on average a company turns its inventory into sales. 

 

Days Inventory Outstanding

Days Inventory Outstanding, defined also as Days of Sales Inventory, indicates how many days on average a company turns its inventory into sales. 


Days Inventory Outstanding Formula

Days in inventory is typically presented as a yearly calculation.

   Days Inventory Outstanding formula: (Average Inventory / Cost of Goods Sold) * 365 Days

Days of Inventory Outstanding Interpretation 

The Days Inventory Outstanding ratio is an important financial ratio for company's with inventory as it shows how quickly management can turn inventories into cash. However, investors should be aware that the value of Days of Inventory Outstanding varies from industry to industry. Companies that create large machinery (such as Airplane manufacturers) are likely to have a higher DIO than a small retailer. 

In general, a decrease in Days Inventory Outstanding can indicate that a company is able to sell inventory at a faster pace resulting in an improvement to working capital. An increase in Days Inventory Outstanding represents a deterioration of cash. 

Days Inventory Outstanding plays a crucial component in the Cash Conversion Cycle (CCC), which is used to determine how long cash is tied up in working capital.

RELATED TERMS