What is DIO?
The average number of days a company holds inventory before selling it.
Think of it like this
Like measuring how long groceries sit on your shelf before you eat them - fresher is usually better.
Formula
DIO = (Inventory ÷ COGS) × 365- Inventory: Average inventory value
- COGS: Cost of Goods Sold
- 365: Days in a year
Why it matters
- Shows inventory holding period
- Lower = less cash tied up in inventory
- High DIO may indicate obsolescence risk
- Critical for perishable goods businesses
What's a good value?
< 30 days
Excellent
Fast-moving inventory (groceries)
30-60 days
Good
Efficient inventory management
60-90 days
Average
Normal for many industries
> 90 days
High
Slow-moving inventory, tied-up capital
Real-world example
Electronics retailers aim for low DIO because products become obsolete quickly.
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