Definition
DIO estimates how many days inventory sits before it is sold. It is a component of the cash conversion cycle for inventory-heavy businesses.
Formula
DIO ~ average inventory / (COGS per day)
Example
If average inventory is $900k and COGS per day is $10k, DIO is 90 days.
How to use it
- Lower DIO usually improves cash conversion, but too low can risk stockouts.
- For SaaS, DIO is often near zero; focus on AR/AP instead.
- Track DIO alongside DSO and DPO to see the full cash cycle.
Common mistakes
- Reducing DIO too aggressively and causing stockouts.
- Comparing DIO without accounting for seasonality.
Why this matters
This term matters because cash timing and risk are usually the difference between a plan that works on paper and a plan that survives. Use consistent definitions so decisions are comparable over time.
Practical checklist
- Write a 1-line definition for "Days Inventory Outstanding (DIO)" that your team will use consistently.
- Keep the time window consistent (weekly/monthly/quarterly) when comparing trends.
- Segment results (channel/plan/cohort) before drawing big conclusions from blended averages.
- Sanity-check with a related calculator from the same category on MetricKit.
- Read the related guide (e.g., Cash conversion cycle: turn working capital into runway) for context and common pitfalls.
Where to use this on MetricKit
Calculators
- DCF Valuation Calculator: Estimate enterprise value using a simple DCF: forecast cash flows, apply a discount rate (often WACC), and add a terminal value.
- Investment Decision Calculator: Evaluate an investment using NPV, IRR, discounted payback, and profitability index from simple cash flow assumptions.
- Profitability Index Calculator: Calculate profitability index (PI) from discounted cash flows and estimate the max investment for a target PI.
- WACC Calculator: Calculate WACC (Weighted Average Cost of Capital) from capital structure, cost of equity, cost of debt, and tax rate.
- Equity Value Calculator: Convert enterprise value (EV) into equity value using cash, debt, and other adjustments (optionally per share).
Guides
- Cash conversion cycle: turn working capital into runway: A practical guide to the cash conversion cycle (CCC): how AR/AP timing changes cash, how to reduce days outstanding, and why runway depends on working capital.