Days inventory outstanding (DIO): the formula and a calculator

Days inventory outstanding (DIO) is the number of days your average inventory would last at your rate of cost of goods sold. The formula is average inventory divided by cost of goods sold, times the days in the period. The calculator below fills in the formula with your own numbers and adds your inventory turnover.

Derik Lawlis Founder, ThriveAI · builds AI systems inside manufacturers

The DIO formula

BDC, the Business Development Bank of Canada, calls the same measure average days inventory. It multiplies average inventory by the days in the period and divides by cost of goods sold (COGS).

The ASCM Supply Chain Dictionary lists it under days of supply: the value of inventory divided by the average daily cost of goods sold. The Corporate Finance Institute adds other names: inventory days of supply, days in inventory and the inventory period. Under any of these names, including the inventory days formula, the calculation is the same.

DIO divides by cost of goods sold rather than sales, so both sides of the ratio are at cost. Averaging the start and end balances smooths out an inventory figure that moves every day. If your stock swings with the seasons, average the month-end balances for the year instead.

Days in inventory calculator

This days in inventory calculator works out DIO from three numbers. Enter your average inventory, your cost of goods sold for the same period and the days in that period. It shows DIO, inventory turnover and the formula with your numbers filled in, starting from the example on this page.

A worked example

Take a distributor with $18,250,000 of cost of goods sold last year. Its inventory stood at $2,900,000 at the start of the year and $3,100,000 at the end.

1. Average inventory = ($2,900,000 + $3,100,000) ÷ 2 = $3,000,000.
2. DIO = $3,000,000 ÷ $18,250,000 × 365 = 60.0 days.
3. Inventory turnover = $18,250,000 ÷ $3,000,000 = 6.08 times a year, and 365 ÷ 6.08 gives the same 60 days after rounding.

The distributor holds about two months of stock at cost. Each day of DIO is $50,000 of inventory, which is the cost of goods sold for one day: $18,250,000 ÷ 365.

A manufacturer uses the same formula on total inventory: raw materials, goods in process and finished products. Statistics Canada reports manufacturing inventories in those three stages, and a DIO split the same way shows where the days sit.

Formula variants

Textbooks and software calculate DIO in slightly different ways. On the example numbers, the variants give these results.

The quarter row uses the fourth quarter alone: $4,600,000 of cost of goods sold over 92 days, with $3,050,000 of average inventory. OpenStax, part of Rice University, shows two variants: its Principles of Accounting uses average inventory, and its Principles of Finance uses ending inventory.

Pick one variant and keep it. On the example, a DIO on ending inventory and 365 days is almost three days higher than one on average inventory and 360 days. Nothing changed in the warehouse, so write the variant on the report.

What a good DIO looks like for a manufacturer or a distributor

No single benchmark exists for a good DIO. It depends on what you sell, how you make it and how fast your suppliers deliver. OpenStax recommends comparing the ratio with your own previous years, your direct competitors and your industry.

For a national reference point, Statistics Canada publishes an inventory-to-sales ratio each month. It measures how many months it would take to exhaust inventories if sales stayed at their current level.

The days column multiplies each ratio by 30.4, the average number of days in a month. The ratio divides by sales at selling prices, while DIO divides by cost of goods sold. The same stock therefore shows more days of DIO than days of sales, so read these figures as a floor for each sector’s DIO.

A plant’s inventory includes raw materials and goods in process as well as finished products. A wholesaler’s inventory is goods bought for resale. Your own trend is the better test: a DIO that rises while sales are flat means stock is building faster than it sells.

How DIO links to cash

BDC’s cash conversion cycle adds average days inventory to average days receivable and subtracts average days payable. The result is the number of days your cash stays tied up in operations. BDC notes that a positive cycle means daily operations tie up cash, and you may need financing to pay suppliers on time.

ASCM calls the same sum the cash-to-cash cycle time. On the example, one day of DIO is $50,000 of inventory at cost. Cutting DIO from 60 to 50 days, at the same cost of goods sold, releases about $500,000 of cash. Order to cash covers the receivables side of the cycle.

How to lower DIO without running short

OpenStax states the trade-off: too little inventory means lost sales, and too much means idle money plus the cost of storing it. Lower DIO item by item, starting where the days are.

• Compute DIO by item and family. The company total hides the items that hold most of the days. A list ranked by inventory value and days shows them.
• Set reorder points from real demand. Safety stock and reorder points set from demand and lead-time variation hold less stock where demand is steady. Inventory optimization covers the formulas.
• Cut or reprice the tail. Items that rarely sell carry the highest DIO. SKU rationalization ranks them on margin, demand and customer ties.
• Agree inventory targets every month. Sales and operations planning sets an inventory target for each product family beside the sales and production plans.
• Watch fill rate beside DIO. A DIO that falls while backorders rise has cut into stock that customers need.

An AI reporting setup can compute DIO by item and family from your ERP every week, with the query behind each number. ThriveAI’s AI reporting sprint builds that kind of report from your own records, and a person still decides which stock to cut. More calculators for manufacturers and distributors are on the tools page.