How To Calculate Inventory Days Ratio

Inventory Days Ratio Formula:

\[ DIO = \frac{Inventory}{COGS} \times 365 \]

Days Inventory Outstanding (DIO):

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is the Inventory Days Ratio?

The Inventory Days Ratio, also known as Days Inventory Outstanding (DIO), measures how many days it takes for a company to sell its entire inventory. It indicates the efficiency of inventory management and working capital optimization.

2. How Does the Calculator Work?

The calculator uses the DIO formula:

\[ DIO = \frac{Inventory}{COGS} \times 365 \]

Where:

\( DIO \) — Days Inventory Outstanding (days)
\( Inventory \) — Value of inventory on hand (currency)
\( COGS \) — Cost of Goods Sold (currency/year)
\( 365 \) — Number of days in a year

Explanation: The formula calculates the average number of days that inventory is held before being sold. A lower DIO indicates more efficient inventory management.

3. Importance of DIO Calculation

Details: DIO is a crucial financial metric that helps businesses optimize inventory levels, reduce carrying costs, improve cash flow, and identify potential inventory management issues. It's widely used in financial analysis and working capital management.

4. Using the Calculator

Tips: Enter inventory value in currency units, COGS in currency per year. Both values must be positive numbers. Use consistent currency units for accurate results.

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 benchmarks. Retail typically has lower DIO than manufacturing.

Q2: How does DIO affect cash flow?
A: Higher DIO means more capital tied up in inventory, reducing available cash. Lower DIO improves cash flow and working capital efficiency.

Q3: Can DIO be too low?
A: Extremely low DIO may indicate stockouts or insufficient inventory to meet demand, potentially leading to lost sales.

Q4: How often should DIO be calculated?
A: Monitor DIO regularly (monthly or quarterly) to track inventory management performance and identify trends.

Q5: What factors can affect DIO?
A: Seasonality, sales patterns, supplier reliability, inventory management systems, and economic conditions all influence DIO.