Days inventory outstanding calculator

What days inventory outstanding means

Days inventory outstanding (DIO) is the average number of days a business holds inventory before it sells. It is a money measure: it divides the value of the stock you carried by the cost of the stock you sold, so a SKU that costs $40 counts forty times as much as one that costs $1. That makes it the figure your accountant and your lender look at when they ask how much cash is tied up on the shelf.

The days inventory outstanding formula

DIO = average inventory ÷ cost of goods sold × days in the period

• Average inventory is the inventory value at the start of the period plus the value at the end, divided by two. Both at cost, never at retail price.
• Cost of goods sold (COGS) is for the same period only. A quarter's DIO needs a quarter's COGS.
• Days is the length of that period: 30 for a month, 90 for a quarter, 365 for a year. Using a year's COGS with 30 days, or the other way round, is the most common reason a DIO comes out wildly wrong.

In a spreadsheet, with the opening inventory in B1, the closing inventory in B2, COGS in B3 and the days in B4: =AVERAGE(B1,B2)/B3*B4.

How to use the calculator

1. Pick the period: month, quarter, year, or a custom number of days.
2. Type the inventory value at the start and at the end of that period.
3. Type the cost of goods sold for the same period.
4. Read DIO, then the three figures beside it. Copy the math if you want the working in your own sheet.

A worked example

A store starts the quarter with $182,000 of inventory at cost and ends it with $158,000. Its cost of goods sold for the quarter is $255,000. These are the numbers the calculator opens with.

• Average inventory = ($182,000 + $158,000) ÷ 2 = $170,000
• DIO = $170,000 ÷ $255,000 × 90 = 60.0 days
• Inventory turnover = $255,000 ÷ $170,000 = 1.50 turns in the quarter
• Turns per year = 1.50 × 365 ÷ 90 = 6.08
• Days on hand now = $158,000 ÷ ($255,000 ÷ 90) = 55.8 days

The last line is the one to act on. DIO says the average dollar of stock took 60 days to sell over the quarter. Days on hand says the $158,000 left on the shelf lasts about 56 days if the next quarter sells like this one. If a reorder from your main supplier takes 70 days to land, that gap is a stockout on the calendar.

DIO and inventory turnover are one measurement

Inventory turnover is COGS ÷ average inventory. DIO is the days in the period ÷ turnover. So a turnover of 6 a year is a DIO of about 61 days, and a turnover of 12 is about 30. The calculator shows both because people ask for both. If your board pack quotes turns and your lender asks for days, the same three figures answer both.

DIO is also one of the three parts of the cash conversion cycle: DIO, plus days sales outstanding (how long customers take to pay), minus days payable outstanding (how long you take to pay suppliers). A brand selling direct to consumers gets paid within days, so DIO is most of its cycle.

Where to find the three numbers

• QuickBooks Online: Reports, then Balance Sheet, gives the inventory asset on the first and last day of the period (run it twice, once for each date). Reports, then Profit and Loss, gives cost of goods sold for the dates between.
• Xero: Accounting, then Reports, has the same two reports: Balance Sheet for the inventory value and Profit and Loss for cost of goods sold.
• No accounting inventory: if your books expense stock when you buy it, there is no inventory line to read. Use a stock valuation report from your inventory system at cost, and COGS as units sold times unit cost for the same dates.

Limits

A two-point average misses what happened in between. A store that built stock for a holiday and sold it all by the period end looks leaner than it was, so use monthly figures across a seasonal year. DIO is also one number for the whole business: a 60-day average can be a 20-day best seller and a 200-day line nobody has reordered. That second line is the subject of how to clear dead stock without killing margins. For the weekly version of this, days on hand alongside turnover and stockout rate, see the metrics an ecommerce ops manager tracks every week. Per-SKU DIO needs per-SKU cost, which is what FIFO costing in sku.io keeps.