1. What is Days Inventory Outstanding?

Days Inventory Outstanding (DIO) is a financial ratio that measures the average number of days a company holds its inventory before selling it. It indicates how efficiently a company manages its inventory levels and turnover.

2. How Does the Calculator Work?

The calculator uses the DIO formula:

Where:

• \( Average\ Inventory \) — Average value of inventory during the period ($)
• \( COGS \) — Cost of Goods Sold for the period ($/year)
• \( 365 \) — Number of days in a year

Explanation: The formula calculates how many days it takes for a company to turn its inventory into sales, providing insight into inventory management efficiency.

3. Importance of DIO Calculation

Details: DIO is crucial for assessing inventory management efficiency, cash flow optimization, and identifying potential obsolescence risks. Lower DIO generally indicates better inventory management.

4. Using the Calculator

Tips: Enter average inventory in dollars, COGS in dollars per year. Both values must be positive numbers. Average inventory is typically calculated as (Beginning Inventory + Ending Inventory) / 2.

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: DIO shows days to sell inventory, while inventory turnover shows how many times inventory is sold and replaced in a period. They are inversely related.

Q3: Why use average inventory instead of ending inventory?
A: Average inventory provides a more accurate picture by smoothing out seasonal fluctuations and one-time events.

Q4: Can DIO be too low?
A: Extremely low DIO may indicate stockouts or insufficient inventory levels, potentially leading to lost sales opportunities.

Q5: How often should DIO be calculated?
A: DIO should be calculated regularly (quarterly or annually) to track inventory management performance over time.