Days Inventory Outstanding (DIO)
The average number of days a company holds inventory before selling it: inventory divided by cost of goods sold, multiplied by the days in the period.
Days inventory outstanding, also called days sales of inventory or inventory days, converts the inventory turnover ratio into days. It equals inventory divided by cost of goods sold, multiplied by the number of days in the period, or equivalently 365 divided by turnover. Cost of goods sold, not sales, belongs in the denominator because inventory is carried at cost.
The inventory figure matters: the ending balance, a two-point average and an average of all month-end balances can differ by weeks in a seasonal business. DIO is the first component of the cash conversion cycle.
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