This Days Inventory Outstanding Excel Template is a great educational resource to show you how to calculate the number of days inventory kept in a company's storage given the inventory, cost of sales accounts, and the number of days in the period. Use this Excel template to learn from an example! Days Inventory Outstanding (DIO) is also referred to as Inventory days of supply, “days in inventory” or “the inventory period.” It measures the average number of days a company holds its inventory before they are sold. Being a measure of liquidity, DIO indicates how fast a company turns inventory into cash.
Formula for Days Inventory OutstandingThe formula for calculating DIO is as follows: DIO = (Average inventory/Cost of good sold) x Number of days in period Where: Average inventory = (Beginning inventory + Closing inventory) / 2
How to Interpret DIOA low DIO figure generally means that a company has the ability to turn its inventory into sales quickly. It indicates efficiency in inventory management and sales. On the other hand, a high DIO indicates that the company is either performing poorly in sales or purchases too much inventory. Holding idle inventory could be problematic to the company, as the inventory could become obsolete and could not be sold to customers. Generally speaking, a low days inventory outstanding figure is favorable to companies because it is a measure of inventory management efficiency and liquidity. DIO can be used to compare between companies in the same industry, but not optimal for comparing between different industries as it could vary greatly.
More Useful ResourcesRead CFI's guide on DIO to learn the definition, application, and examples! If you’d like to see more examples in addition to this day inventory outstanding Excel template, make sure to check all the Financial Model templates on CFI Marketplace.