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Financial metrics glossary

Days inventory outstanding (DIO): definition, formula and example

Days inventory outstanding (DIO) is the average number of days a company holds inventory before selling it. It is inventory divided by cost of goods sold for a period, multiplied by the number of days in that period.

Updated

Formula

  • DIO = Inventory ÷ Cost of goods sold in the period × Days in the period
  • Inventory turnover = Cost of goods sold ÷ Inventory
  • DIO = Days in the period ÷ Inventory turnover

Worked example

Illustrative

ILLUSTRATIVE · round numbers, not the sample company

Northbridge Analytics, the fictional company in the Financial Analyst's public sample, sells software and holds no inventory, so this example uses round numbers for a business that does — a wholesaler, over one year:

Line Amount
Inventory at the start of the year $110,000
Inventory at the end of the year $130,000
Cost of goods sold for the year $730,000
Days in the period 365
  1. Average inventory = ($110,000 + $130,000) ÷ 2 = $120,000
  2. DIO = $120,000 ÷ $730,000 × 365 = 60.0 days
  3. Inventory turnover = $730,000 ÷ $120,000 = 6.08 times a year

Days inventory outstanding: 60 days

The days in the period divided by the turnover give the same answer: 365 ÷ 6.08 = 60.0 days.

How to read it

  • Every day of DIO is cash paid for stock that has not yet been sold. A lower DIO frees cash; too low can mean running out of stock and losing sales.
  • Take the inventory balance the same way each time: the balance at the end of the period, or the average of the opening and closing balances. The average smooths a business whose stock builds up ahead of a season.
  • DIO is an average across every item. Slow-moving or obsolete stock can sit for months behind a reasonable total, so look at inventory by product too.
  • A business that sells services or software usually holds no inventory: its DIO is zero and its cash conversion cycle is DSO minus DPO.

How small US public companies compare (FY2025 10-Ks)

Median
108.4 days
Middle half
33.9 days to 192.2 days
Companies
373

All industries, from Ataski's study of the fiscal 2025 annual reports (Form 10-K) that non-accelerated filers with revenue of $1 million to $250 million filed with the SEC: half the companies are above the median and half below, and the middle half fall within the range shown. These are small public companies, not private businesses, so read the figures as a reference point rather than a target.

Days inventory outstanding (DIO) by industry, with the method →

Source: Ataski analysis of SEC Financial Statement Data Sets (FY2025 10-K filings).

Where it shows up in the monthly management report

The report's “Working capital and cycles” table prints days inventory outstanding with DSO, DPO and the cash conversion cycle. When the books carry no inventory line, the table says DIO was not computed rather than printing zero.

For an online store, a retailer, a manufacturer or a wholesaler, the workspace's Briefing screen leads with the days stock is held, and the 13-week cash forecast includes the cash spent replenishing stock when the books give a DIO.

  • Open the sample workspace — a fictional company's books, worked by the Financial Analyst, with its monthly report. No signup.
  • The Financial Analyst — what it reads from your accounting system, what the report contains and what it costs.

Frequently asked questions

What is a good DIO?

Median 108.4 days (middle half 33.9–192.2 days), 373 companies, FY2025 10-Ks: the days inventory outstanding (DIO) of small US public companies that report inventory, with revenue of $1 million to $250 million and outside finance, insurance and real estate. It depends on what is sold: fresh food turns over in days, machinery or jewellery in months. Compare DIO with your own history and with businesses that sell similar goods, and look at slow-moving items separately.

Source: Ataski analysis of SEC Financial Statement Data Sets (FY2025 10-K filings)

What is the difference between DIO and inventory turnover?

They measure the same thing from two sides. Inventory turnover counts how many times stock is sold and replaced in a period; DIO turns that into days. A turnover of 6 times a year is about 61 days.

How can a business lower its DIO?

Order closer to demand, clear slow-moving stock, agree shorter lead times with suppliers so less safety stock is needed, and stop buying items that rarely sell.

Why is DIO zero for a software company?

Because it holds no inventory: there is no stock waiting to be sold. Its cash conversion cycle is days sales outstanding minus days payable outstanding.