The days inventory outstanding formula is average inventory divided by cost of goods sold, multiplied by the number of days in the period. DIO tells you how many days, on average, stock sits before it sells. A DIO of 60 means the money you paid a supplier comes back as sales about two months later.
The DIO formula, two ways
DIO = (average inventory ÷ cost of goods sold) × days in the period. Corporate Finance Institute gives the same formula, with average inventory taken as opening plus closing stock, divided by two.
If you already know your inventory turnover ratio, DIO is one step away: DIO = days in the period ÷ inventory turnover. Both routes give the same answer.
| Input | What it means | Where it comes from |
|---|---|---|
| Average inventory | Stock at cost on a typical day | (Opening + closing stock) ÷ 2 |
| Cost of goods sold | What the goods you sold cost you | Opening stock + purchases − closing stock |
| Days in the period | 365 for a year, 90 for a quarter, 30 for a month | The same period as the other two |
A worked example in Kenya shillings
For example, take a hardware shop in Nairobi over one year. The figures are illustrative, and all are at cost.
| Step | Calculation | Result |
|---|---|---|
| 1. Average inventory | (2,400,000 opening + 3,000,000 closing) ÷ 2 | KES 2,700,000 |
| 2. Cost of goods sold | From the year's stock and purchase records | KES 14,600,000 |
| 3. DIO | (2,700,000 ÷ 14,600,000) × 365 | 67.5 days |
| 4. Check with turnover | 14,600,000 ÷ 2,700,000 = 5.41 turns, then 365 ÷ 5.41 | 67.5 days |
Stock in this shop sits about 67 days before it sells. Each of those days is worth one day of cost of goods sold: KES 14,600,000 ÷ 365 = KES 40,000.
Why the same shop can have four different DIOs
Published DIO figures differ because people choose different inputs. Some use average inventory, others closing stock, as CFI's days sales in inventory example does. Some count 365 days, others 360.
| Method | Calculation | DIO |
|---|---|---|
| Average inventory, 365 days | 2,700,000 ÷ 14,600,000 × 365 | 67.5 |
| Closing stock, 365 days | 3,000,000 ÷ 14,600,000 × 365 | 75.0 |
| Average inventory, 360 days | 2,700,000 ÷ 14,600,000 × 360 | 66.6 |
| Closing stock, 360 days | 3,000,000 ÷ 14,600,000 × 360 | 74.0 |
The same shop scores anywhere from 66.6 to 75.0 days. Pick one method, write it at the top of your spreadsheet, and compare only with figures built the same way.
Days sales of inventory (DSI) and days in inventory are other names for this measure. Check which stock figure a source used before you compare with it.
What DIO means for your cash
DIO is the first part of the cash conversion cycle: the days between paying for stock and collecting cash from customers. CFI writes the cash conversion cycle as DIO + DSO − DPO.
- DSO, days sales outstanding: how long credit customers take to pay. Average receivables ÷ credit sales × 365.
- DPO, days payable outstanding: how long you take to pay suppliers. Average payables ÷ cost of goods sold × 365.
Credit runs both ways in much of African trade. In the example, the Nairobi shop gives contractors 30 days to pay and gets 30 days from its distributor.
| Part | Calculation | Days |
|---|---|---|
| DIO | As above | 67.5 |
| DSO | KES 600,000 average owed by customers ÷ 7,300,000 credit sales × 365 | 30.0 |
| DPO | KES 1,200,000 average owed to suppliers ÷ 14,600,000 × 365 | 30.0 |
| Cash conversion cycle | 67.5 + 30.0 − 30.0 | 67.5 |
The two credit periods cancel out, so stock alone decides how long the shop's cash is away. Cutting DIO by 15 days frees about KES 600,000, which is 15 × 40,000, for the next order.
Longer supplier credit shortens the cycle too, but it changes DPO, not DIO. Stock that sits still keeps costing money while it waits: see inventory holding cost.
What is a good DIO?
A good DIO is shorter than the shelf life of what you sell and long enough that shelves never go empty. No single target fits every shop, which is why CFI advises comparing DIO within one industry.
- Fresh food: days. A DIO longer than the shelf life means waste.
- Groceries and household goods: weeks. Shoprite's 2025 figures put one large food retailer near 57 days, worked out in the turnover article.
- Hardware and spare parts: can run to months, because the shop must hold sizes and fittings that sell rarely.
Track your own DIO by product group, month by month. A rising DIO with steady sales means stock is piling up somewhere.
DIO looks back; days of cover looks forward
DIO describes a period that has ended. For this week's order, use days of cover: units on hand ÷ average units sold per day.
For example, the Nairobi shop holds 120 bags of cement and sold 240 in the last 30 days, which is 8 a day. It has 15 days of cover, so with a 3-day delivery it need not reorder yet.
The reorder point decides the exact day to order. Too little cover means empty shelves, and too much rebuilds a high DIO: avoiding overstocking and stockouts covers the balance.
How to lower DIO without running out
- Clear stock older than 90 days. Price it down, bundle it with a fast seller, or agree a return. See dead stock.
- Move slow stock to the branch where it sells before buying more for that branch.
- Buy fast sellers in smaller, more frequent orders when the supplier is close and reliable.
- Let the system warn you instead of ordering from memory: see how to automate inventory management.
How to find DIO in ArmPOS
- Open Reports › Analytics Report for the period and the warehouse. Read Opening Stock and Closing stock by purchase price, and Total Purchase. See Sales reports.
- Work out cost of goods sold as opening stock + total purchase − closing stock, then apply the formula.
- See how long stock has sat. The Stock Aging Report sorts what you hold into up to 30, 30 to 60, 60 to 90 and over 90 days. See Stock reports.
- Get the credit figures. The Customers Report shows each customer's Total Sale Due, and the Suppliers Report the Total Purchase Due you owe. See Customer and supplier reports.
- Act on the over-90 bucket first. That is where a lower DIO comes from.
Frequently asked questions
Is DIO the same as days sales of inventory?
Yes, DIO, DSI and days in inventory measure the same thing. Some sources use closing stock instead of average stock, so check before you compare.
Is a high DIO bad?
Usually it means cash tied up in stock that is getting older. A DIO so low that shelves go empty is worse, because it costs sales.
Should I use 365 or 360 days?
Use 365 for a year, or the real number of days in a shorter period. Whichever you choose, keep it the same every time.
Can I calculate DIO for one month?
Yes. Divide that month's average inventory by that month's cost of goods sold and multiply by the days in the month.
ArmPOS gives opening and closing stock at cost for any period and shows how long each product has sat on the shelf. Create a free ArmPOS account to work out your own DIO; shops in Kenya can start from ArmPOS in Kenya.
