What is Days Inventory Outstanding (DIO)?
Days Inventory Outstanding measures the average number of days a business holds inventory before selling it. The formula is (average inventory / cost of goods sold) x 365. A lower DIO suggests faster inventory turnover and less working capital tied up in stock.
How It Works
- Calculate average inventory from opening and closing balances.
- Divide by cost of goods sold.
- Multiply by 365 days.
- Compare against industry peers and trend over time.
Saudi Context
Saudi retailers with seasonal cycles (Ramadan, back-to-school) often see DIO swings; tracking it monthly helps avoid markdowns on aging stock.
Example
If average inventory is SAR 5 million and COGS is SAR 30 million, DIO is (5 / 30) x 365 = 60 days.