Inventory turnover ratio tells you how many times stock turns over in a year. But "6 times a year" is a hard number to picture day to day. DIO turns that same idea into days instead. That makes it easier to see how long stock really sits before it sells.

How to Calculate DIO

DIO = (Average Inventory ÷ Cost of Goods Sold) × Number of Days in Period

For a yearly figure, the number of days is usually 365. DIO can also be worked out directly from turnover ratio: DIO = 365 ÷ Inventory Turnover Ratio.

A Worked Example

Using the earlier turnover example — a ratio of 6 — DIO would be 365 ÷ 6 ≈ 61 days. On average, this business takes about two months to sell through its inventory.

What a High or Low DIO Means

A low DIO means inventory moves quickly. That's usually a sign of strong sales and tight stock control. But a very low number can also mean stock levels are running too thin. A high DIO means inventory sits longer before it sells. This can point to overstocking, weak demand, or dead stock building up. All of that ties up cash for longer than needed.

DIO and Cash Flow

DIO is closely tied to cash flow. Inventory is cash that's already been spent but not yet earned back through a sale. A business that lowers its DIO sells through stock faster, which frees up cash sooner. That's one reason DIO gets tracked alongside broader cash conversion cycle metrics.

Key Takeaways

Days Inventory Outstanding turns turnover ratio into an average number of days stock sits before it sells. It's an easy way to see how well inventory moves and how that affects cash flow. A lower number usually means healthier movement. But context and industry norms still matter.

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