Days Inventory Outstanding (DIO) FormulaĭIO measures the number of days required for a company to sell off the amount of inventory it has on hand. That is why the inventory turnover ratio and days inventory outstanding (DIO) are valuable metrics to track for companies, especially those selling physical products (e.g., retail, e-commerce).įor purposes of forecasting, inventory is ordinarily projected based on either inventory turnover or days inventory outstanding (DIO). In addition to being an indicator of ordering and inventory management efficiency, a high inventory turnover ratio and low DIO means higher free cash flows. The average inventory turnover and DIO varies by industry however, a higher inventory turnover and lower DIO is typically preferred as it implies the management of inventory is closer to an optimal state. ![]() On the balance sheet, the inventory line item represents the dollar value of the raw materials, work-in-progress goods, and finished goods of a company.Ī comparative benchmarking analysis of a company’s inventory turnover and DIO relative to its industry peers provides useful insights into how well inventory is being managed. How to Calculate Days Inventory Outstanding (DIO) Days Inventory Outstanding (DIO) Formula.How to Calculate Days Inventory Outstanding (DIO).
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