![]() ![]() The average inventory turnover and DIO varies by industry however, a higher inventory turnover and lower DIO is typically preferred as it implies the management of inventory is closer to an optimal state. The formula to calculate days inventory outstanding (DIO) consists of dividing the average (or ending) inventory balance by cost of goods sold (COGS) and multiplying by 365 days.ĭays Inventory Outstanding (DIO) = 365 Days ÷ Inventory Turnover What is a Good Days Inventory Outstanding?Ī comparative benchmarking analysis of a company’s inventory turnover and DIO relative to its industry peers provides useful insights into how well inventory is being managed. With that said, if the inventory balance of a company rises, that means more cash is tied up in the operations, since it is taking more time for the company to sell and cycle through its inventory compared to the time needed to produce it. current operating assets minus current operating liabilities – causes a reduction in the free cash flow (FCF) of a company. Hence, an increase in working capital – i.e. Cost of Goods Sold (COGS) → On the income statement, the COGS line item represents the direct costs incurred by a company while selling its goods or services to generate revenue.Īn increase in an operating working capital asset, such as inventory, represents an “outflow” of cash. ![]() Inventory Balance → On the balance sheet, the inventory line item represents the dollar value of the raw materials, work-in-progress goods (WIP), and finished goods of a company.To calculate the days inventory outstanding (DIO) of a company, two inputs are necessary: Therefore, companies are incentivized to minimize their days inventory outstanding (DIO) to reduce the time that inventory is sitting idly in their possession, since that implies its operating efficiency improved. How to Calculate Days Inventory Outstanding?ĭIO stands for “Days Inventory Outstanding”, and measures the number of days required for a company to sell off the amount of inventory it has on hand. Ending Inventory Balance Forecast Example (DIO) Days Inventory Outstanding Calculation Example ![]() Inventory Turnover Ratio Calculation Analysis Days Inventory Outstanding Calculator (DIO).Inventory Turnover: What is the Difference? What is a Good Days Inventory Outstanding?.Days Inventory Outstanding Formula (DIO).How to Calculate Days Inventory Outstanding?.Additionally, you can sign up for our Daily or Weekly newsletters to receive these top-ranked articles right in your inbox, or you can sign up to be notified when new resources like webinars or ebooks are available. We use reader data to auto-curate the articles, meaning that the most valuable resources move to the top. Supply Chain Brief is a collection of the leading industry thought leadership in the form of blogs, webinars, and downloadable resources, on one convenient website. 2019 Supply Chain Brief Summer Reading List.How to achieve six-figure benefits from digitizing paper-based supply chain operation.Have resources to share? Submit Your Own! Just In: Inventory Optimization Research.How Does Your Inventory Optimization Process Compare to Peers?.Prove ROI and Make the Business Case for Industrial Content Marketing.The Current State of Warehouse Technology.Learn with the Flow: Digital Adoption Tactics That Drive Digital Transformation.Automated Order Processing and Proactive Inventory Management.Parts Town: An O2C Journey from Manual Processing to Digital Transformation.How Automation in the Supply Chain Will Make Employees More Strategic & Improve the Overall Supply Chain. ![]()
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