Formula
DIO = (Average Inventory / Cost of Goods Sold) × 365
What DIO Means
| DIO Range | Interpretation |
|---|---|
| < 7 days | Extremely fast turnover (e-commerce, perishables) |
| 7-30 days | Fast turnover (weekly/biweekly) |
| 30-90 days | Moderate turnover (monthly/quarterly) |
| 90-180 days | Slow-moving inventory (seasonal, bulky goods) |
| > 180 days | Very slow movement (potential obsolescence risk) |
Relationship to Inventory Turnover
DIO and Inventory Turnover are inverse metrics:
- Inventory Turnover = 365 / DIO
- DIO = 365 / Inventory Turnover
Example: if DIO = 73 days, then Inventory Turnover = 5.0 times per year.
When to Use
- Compare DIO across product lines
- Benchmark against industry standards
- Identify obsolete or overstocked items
- Assess working capital efficiency
- Calculate cash conversion cycle
Example
Scenario: Retail distribution center
Average inventory: $100,000
Annual COGS: $500,000
Calculation:
DIO = ($100,000 / $500,000) × 365
DIO = 73 days
On average, inventory sits 73 days in the warehouse before being sold. This is roughly 2.4 months, or about 5 times per year (which matches Inventory Turnover of 5.0).