Days inventory outstanding

Financial ratio analysis - management efficiency ratios.

(DIO).

Days inventory outstanding is a working capital management ratio calculated by dividing inventory outstanding at the end of a time period by the average daily cost of goods sold for the period.

For example: a company holds on average £30,000 of stock over a year. It sells £300,000 of goods per annum.

The days inventory outstanding are:

(30,000 / 300,000) x 365

= 36.5 days

A lower number of days is usually considered desirable, because it is a quick measure of the amount of stock held, although the business must also gauge the amount of stock required to meet customers’ delivery expectations.

Also known as Inventory days.

See also

• Cost of goods sold
• Creditors
• Days payables outstanding
• Days sales outstanding
• Inventory
• Inventory turnover ratio
• Management efficiency ratio
• Operating cycle
• Payables management
• Working capital