Calculate days inventory outstanding and inventory turns from average stock and COGS. See the cash tied up in inventory and the cost of holding it.
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Short answer
Days inventory outstanding is average inventory divided by COGS for the period, multiplied by the days in that period. With $4,400,000 of average stock against $6,300,000 of quarterly COGS over 91 days, DIO is 63.6 days, or about 5.7 inventory turns a year. Lower is better only while fill rate holds.
DIO is how long a dollar sits in stock before it becomes cost of sale. It is the largest leg of the cash conversion cycle for most distributors and manufacturers, and the one operations can move without asking a customer for anything.
This DIO calculator takes your opening and closing inventory and the COGS for the same period. It returns days inventory outstanding, annualised inventory turns, the cash sitting in stock, the annual cost of holding it, and what a reduction in days would release.
Your numbers
$
At cost, on the same valuation basis as COGS. Exclude in-transit and consignment stock.
$
Same basis and same locations as the opening balance.
$
Cost of goods sold, not revenue. Using revenue understates DIO by roughly your gross margin.
days
Actual calendar days: 30 or 31 monthly, 90 or 91 quarterly, 365 annually.
%
Capital, storage, handling, insurance, shrink and obsolescence combined. 18–28% is the usual band.
days
The reduction in DIO you want to price.
Result
Days inventory outstanding
63.6 days
About 5.7 inventory turns a year
Average inventory$4,400,000
Inventory turns (annualised)5.74×
Average daily COGS$69,231
Annual carrying cost at 22%$968,000
Cash released by 7 fewer days$484,615
Carrying cost saved a year$106,615
Average inventory = ($4,100,000 + $4,700,000) ÷ 2 = $4,400,000
÷ COGS $6,300,000 = 0.6984
× 91 days in period
DIO = 63.6 days · turns = 365 ÷ 63.6 = 5.74×
One day of DIO is $69,231 of cash at your current COGS run rate.
Change in DIO
New DIO
Average inventory
Turns
Carrying cost
-14 days
49.6 days
$3,430,769
7.37×
$754,769
-7 days
56.6 days
$3,915,385
6.45×
$861,385
0 days
63.6 days
$4,400,000
5.74×
$968,000
+7 days
70.6 days
$4,884,615
5.17×
$1,074,615
63.6 days, or 5.7 turns a year, is a workable balance for most distributors and manufacturers. The next gain is in the slow-moving tail, not in cutting buffers across the board.
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The formula
DIO = (Average inventory ÷ COGS) × Days in period
Average inventory
Opening plus closing inventory at cost, divided by two. A 13-point monthly average is better if the balance swings.
COGS
Cost of goods sold for the same period, at the same valuation basis as the inventory balance.
Days in period
Actual calendar days: 30 or 31 for a month, 90 or 91 for a quarter, 365 for a year.
DIO and inventory turns are the same measurement in different units: turns = 365 ÷ DIO. Use days when you are talking to finance about cash, and turns when you are talking to buyers about replenishment. Both break if inventory is valued at retail and COGS at cost.
Worked example
Opening inventory
$4,100,000
Closing inventory
$4,700,000
COGS in period
$6,300,000
Days in period
91
Carrying rate
22% a year
Result
DIO = 63.6 days · 5.7 turns a year
Average inventory is ($4,100,000 + $4,700,000) ÷ 2 = $4,400,000. Divide by COGS of $6,300,000 to get 0.6984, multiply by 91 days, and DIO is 63.6 days — about 5.7 turns a year. At a 22% carrying rate that stock costs $968,000 a year to hold, and each day of DIO removed releases $69,231.
DIO, turns and days of supply are not the same number
Three metrics get used interchangeably and they answer different questions. Mixing them in one conversation is how a buyer and a controller end up disagreeing about the same warehouse.
Metric
Formula
Answers
DIO
Average inventory ÷ COGS × days
How long the average dollar of stock sits before it sells. A finance view, at cost.
Inventory turns
365 ÷ DIO, or COGS ÷ average inventory
How many times the whole balance cycles in a year. A portfolio view.
Days of supply
On-hand ÷ average daily usage
How long this item lasts at current demand. An item-level replenishment view — see the days of supply calculator.
What moves DIO, in order of size
Dead and slow-moving stock. In most ledgers 20–30% of the balance has not moved in a year. It contributes nothing to COGS and inflates DIO permanently.
Safety stock set by habit. Buffers copied forward for years, not derived from demand variability and lead time. Recalculate them with the safety stock calculator.
Order quantities set by supplier minimums rather than by the trade-off between ordering and holding cost.
Lead time, and its variability. Long lead times raise cycle stock; unreliable lead times raise the buffer on top of it.
Valuation drift. Standard costs that have not been refreshed move the numerator without a single unit moving in the racks.
Turning days into cash
One day of DIO equals one day of COGS. At $25,269,231 of annualised COGS that is $69,231 per day, released once and permanently. Removing 7 days frees $484,615 of cash and saves $106,615 a year in carrying cost at a 22% rate.
Getting the inputs is the slow part: inventory at cost by location for two dates, COGS for exactly the same window, excluding in-transit and consignment. With ERPray you ask for "average inventory and COGS by warehouse for the last six months" and get the number computed live from your own account, with the query shown so you can audit the definition.
Frequently asked questions
How do you calculate days inventory outstanding?
Divide average inventory by COGS for the period, then multiply by the days in that period. Average inventory is usually opening plus closing divided by two. For example, $4,400,000 of average stock against $6,300,000 of quarterly COGS over 91 days gives 63.6 days.
What is a good DIO?
It depends on what you sell. Fresh food distributors run under 15 days, industrial distributors commonly land between 60 and 120, and aerospace spares can exceed a year without anything being wrong. Compare your DIO to your own trend and to your lead times, not to a cross-industry average.
What is the difference between DIO and inventory turnover?
They are the same measurement expressed differently. Turns equals 365 divided by DIO, so 63.6 days is about 5.7 turns a year. Days are easier to combine with DSO and DPO in the cash conversion cycle; turns are easier to compare across product lines.
Should I use COGS or sales in the DIO formula?
COGS. Inventory is carried at cost, so a sales-based denominator mixes two valuation bases and understates DIO by roughly the gross margin. If a benchmark you are comparing against used revenue, restate it at cost before drawing any conclusion.
How much is one day of inventory worth?
One day of average daily COGS. At $25,269,231 of annualised COGS that is about $69,231 per day. Removing 7 days releases $484,615 of cash once, and also removes the carrying cost on that balance — roughly $106,615 a year at a 22% carrying rate.
This calculator needs you to find the inputs first. ERPray pulls them from your own ERP account and computes the answer live — with the exact query shown so you can check it.