Inventory Days Calculator

Days Inventory Outstanding (DIO) measures the average number of days a company holds inventory before selling it. DIO = (Average Inventory / COGS) x 365. A lower DIO indicates faster-moving stock and more efficient inventory management. It is one of the three components of the Cash Conversion Cycle.

A good DIO depends on the industry. Grocery retailers may target under 10 days, while manufacturers might consider 40-60 days acceptable. As a general rule, a lower DIO is better as it means less capital is tied up in stock. Compare your DIO against industry averages rather than absolute benchmarks.

Strategies include: implementing just-in-time (JIT) ordering, improving demand forecasting, reducing supplier lead times, identifying and clearing slow-moving stock, using ABC analysis to focus on high-value items, implementing automated reorder points, and regular stock audits to remove dead stock.

Inventory Turnover Ratio = COGS / Average Inventory. It measures how many times inventory is sold and replaced over a period. A higher ratio indicates efficient inventory management. For example, a ratio of 6 means inventory turns over every 2 months (365/6 = approximately 61 days).

High DIO means more cash is locked up in stock, reducing working capital. For example, if your average inventory is £50,000 and DIO is 60 days, reducing DIO to 30 days could free up approximately £25,000 in cash. This is why DIO is a key component of working capital management.

The Cash Conversion Cycle (CCC) = DIO + DSO - DPO, where DIO is Days Inventory Outstanding, DSO is Days Sales Outstanding, and DPO is Days Payable Outstanding. A shorter CCC means a business converts its investment in inventory back to cash more quickly. Negative CCC (like Amazon) means the company gets paid before paying suppliers.