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Days inventory outstanding

Days inventory outstanding

Description

Days inventory outstanding shows the number of days that it is needed for the company to sell out stock. This ratio is similar to the inventory turnover ratio, only it provides information on company’s stock level in days but not in times. Data needed to calculate this ratio is collected from balance sheet and income statement.

Norms and limitations

There is no general norm for the DIO ratio. It should be compared with the ratio values of the same industry.

A high DIO means that stocks are being sold out too slow. That indicates an ineffective management at the inventory level. The high value of the ratio might also show the risk of products obsolescence. If the value is very low it means that the possibility to run out of stock might occur.

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