Days Inventory Outstanding

Days Inventory Outstanding indicates how many days inventory stays in storage on average before it is sold. The metric shows how quickly a company turns over its goods. A low value means less capital is tied up in inventory.

It is calculated as average inventory divided by the corresponding cost of goods sold, multiplied by 365 days. For a separate raw materials analysis, the corresponding materials consumed may be used. Relating inventory to cost rather than revenue matters, because inventory is measured at acquisition or production cost and using selling prices would systematically understate coverage. Its meaning comes from sector comparison and from the trend over time, since a machinery manufacturer with long production cycles naturally carries higher coverage than a food retailer. Rising inventory days can point to sales problems, obsolete stock or deliberate stockpiling because of uncertain supply chains, while a sharply falling figure can endanger delivery capability and revenue.

A breakdown into raw materials, work in progress and finished goods together with an ageing analysis is therefore informative, because an average conceals slow-moving or unsaleable items. In transactions the metric is used twice over: as a component of the cash conversion cycle and as a review point for inventory valuation, because insufficient write-downs on hard-to-sell stock flatter reported earnings and working capital at the same time. A breakdown by item or product group is essential for analysis, because an average mixes a fast-moving core with a large number of rarely moved positions. Typically a substantial part of the capital tied up sits in items with low turnover. Deliberately built stock also needs consideration, for instance ahead of a supplier price increase or to hedge uncertain supply chains, since it has an economic rationale and should not be read as inefficiency.