Introduction
DIO (Days Inventory Outstanding) measures how many days on average inventory remains in the warehouse before being sold. Low DIO = inventory turns fast; high = stagnant inventory.
Explanation
DIO is simply the inverse of Inventory Turnover expressed in days. If Inventory Turnover = 10×, then DIO = 365/10 = 36.5 days.
Formula
DIO = 365 / Inventory Turnover
Or: DIO = (Inventory/COGS) × 365
Example
Fast Food vs Luxury: - McDonald's: DIO = 10 days (fresh food rotated quickly) - Ferrari: DIO = 180 days (luxury cars sell slowly)
How to read it
DIO < 30 days = excellent (food, fast retail). 30-60 days = good. 60-120 days = moderate. > 120 days = slow. Increasing DIO = inventory moving slower, possible overstock. Declining DIO can be good (better management) or bad (stock-outs). Combine with DSO and DPO to calculate Cash Conversion Cycle.
Key takeaways
- DIO = days inventory remains before selling
- DIO = 365 / Inventory Turnover
- DIO < 30 days = excellent
- DIO > 120 days = slow
- Growing = stagnant inventory
- Part of the Cash Conversion Cycle