Days inventory outstanding.
In plain English
Days inventory outstanding divides average inventory by cost of goods sold and multiplies by the days in the period, showing how long stock sits before it is sold. It carries the same information as inventory turnover in a unit people can actually feel. Longer means more cash parked in goods, more storage cost, and more exposure to markdowns or spoilage. Shorter means faster cash recovery, though very short can signal thin stock and missed sales. It is one of the three legs of the cash conversion cycle, alongside days sales outstanding and days payable outstanding.
01Why it matters
If your goods sit for 90 days and your suppliers want paying in 30, you are financing that gap out of your own pocket every single cycle.
02The math, step by step
Say average inventory is 200,000 dollars and annual cost of goods sold is 1,200,000 dollars. Days inventory outstanding is about 61 days (200,000 divided by 1,200,000, times 365). Cut inventory to 150,000 dollars and it falls to about 46 days, freeing 50,000 dollars of cash.
Illustrative example. The amounts here are hypothetical, chosen to show how the math works, not real quoted rates or figures.
03What this is NOT
These measure different stages. Days inventory outstanding counts the time from receiving goods to selling them. Days sales outstanding counts the time from selling them to getting paid. A business can move stock fast and still wait months for the cash.
04Receipts
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Plain-English answers from our glossary. Receipts included. Never advice.
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