Financial Glossary
Days Inventory on Hand (DIO)
Days inventory on hand (DIO), also called days inventory outstanding, measures the average number of days a company holds its inventory before selling it. It is calculated by dividing average inventory by the cost of goods sold for the period and multiplying by the number of days in that period. A lower DIO generally indicates inventory is moving quickly, while a higher figure suggests slower turnover or potential overstocking.
Problem & Application
For businesses that carry physical goods, such as a campground store, a hospitality operation with retail, or any product-based small business, DIO shows how much cash is tied up in unsold inventory. Holding inventory too long ties up working capital and raises the risk of spoilage or obsolescence, while too little can mean stockouts and lost sales. Tracking DIO alongside the cash conversion cycle helps owners right-size purchasing and free up cash.
In Short
Watching days inventory on hand keeps your shelves and your cash working efficiently rather than sitting idle.