Inventory looks like progress. It feels like you’re ready. But every unsold unit is cash in disguise, just sitting there.
Days Inventory Outstanding (DIO) tells you how long it stays that way. It measures the average time between when you buy or make something and when someone pays you for it. It reflects inventory turnover, and reveals how tightly your operating engine is running.
If you’re managing a tight runway or scaling fast, DIO is one of the cleanest signals of operational health. Not just for finance, but for procurement, ops, sales, and growth.
DIO also becomes more important as your business complexity increases. With multiple SKUs, warehouses, or regions, the lag between inventory purchase and sale can become invisible until it becomes a problem. DIO puts a number to it.
Let’s break it down.
What DIO actually measures
DIO tracks how many days, on average, your inventory sits unsold. You’ll need three things:
- Inventory: How much stock you’re holding
- COGS: What it cost you to make or buy it
- Timeframe: The number of days in the period you’re measuring
Lower DIO = faster turnover. It means you’re converting stock to cash quickly. Higher DIO = slower turnover. That might point to overstocking, weak demand, or inefficiencies upstream.
And this isn’t theoretical. Inventory is one of the biggest working capital sinks in most businesses. A 10-day improvement in DIO can free up hundreds of thousands in usable cash.
Startups often underestimate this. You buy a bulk shipment to get better unit economics, but you don’t realize you’ve just frozen 90 days of cash. DIO surfaces that tradeoff.
How to calculate days inventory outstanding
Here’s the formula:
DIO = (Average inventory ÷ Cost of goods sold) × Number of days in period
where,
Average inventory = (beginning inventory + ending inventory) ÷ 2
For example, say you start the quarter with $50,000 worth of inventory sitting in your warehouse. Three months later, you've got $70,000 in inventory on hand. Throughout the quarter, your cost of goods sold totals $180,000. Here's how you'd calculate your DIO:
Average inventory = ($50,000 + $70,000) ÷ 2 = $60,000
DIO = ($60,000 ÷ $180,000) × 90 days = 30 days
That means inventory sits around for a month before selling. That’s a full month where cash is tied up, unavailable for growth, hiring, or marketing. You can use this insight to spot slow-moving items, adjust your purchasing strategy, or improve your cash flow planning.
Simpler version with ending inventory
You can skip the average, and just use ending inventory for a quick estimate:
DIO = (Ending inventory ÷ Cost of goods sold) × Number of days in period
This method is fast but only accurate if inventory levels are steady. Use it for a rough estimate or when inventory doesn’t bounce around much.
Calculating DIO with inventory turnover
You can also get DIO from inventory turnover. These metrics move in opposite directions:
DIO = 365 ÷ Inventory turnover ratio
Let’s say you turn inventory 12 times a year. Your DIO is about 30 days (365 ÷ 12). This works if you already track turnover and need a quick DIO read.
Choosing your time period
Match the days to your reporting period:
- Annual: Use 365 days (or 360 for simple accounting)
- Quarterly: Use 90 days (or actual days in the quarter)
- Monthly: Use the month’s actual number of days (28–31)
If you’re seasonal, quarterly or monthly DIO gives you sharper insights. A retailer might build inventory in Q3 for a Q4 sales push. Without monthly DIO, you’ll miss the buildup and misread the trend.
This is also where cash planning starts to diverge from accounting. DIO helps you project future liquidity, and not just report past performance.
Average vs. ending inventory
Average inventory smooths out spikes and dips, giving you a clearer read. Ending inventory is faster but can mislead if you measure after a big delivery or right after a big sale. Know what’s happening when you pull the number.
Why DIO matters
DIO shapes your cash position. If inventory moves slowly, cash sits still. When you sell fast, you free up cash for other goals.
If you’re running a startup, DIO connects directly to cash flow. A low DIO signals efficient turnover. That means strong product demand, little waste, and streamlined purchasing or production.
What DIO means for your burn rate
Your burn rate is how quickly you spend cash. High DIO raises it because you’ve spent money on inventory that hasn’t turned into revenue. If you burn $100,000 a month with $300,000 in slow-moving inventory (90-day DIO), you really have three fewer months of runway than your balance might suggest.
How DIO ties into the cash conversion cycle
DIO is one part of your cash conversion cycle (CCC). CCC tracks how long it takes to turn inventory investments into cash flow:
CCC = DIO + DSO - DPO
Where:
DSO= Days sales outstanding (customer payment time)DPO= Days payable outstanding (supplier payment time)
A shorter CCC means you get cash back faster. If DIO is 45 days, DSO is 30 days, and DPO is 60 days, your CCC is 15 days (45 + 30 - 60). You’re turning inventory into cash in just over two weeks after payment timing.
Operational insights you get from DIO
DIO shows how well you line up inventory with sales. If DIO rises, look for:
- Ordering or making more than you need
- Slowing demand for certain products
- Gaps in warehouse operations
- Poor sales or demand predictions
If DIO falls, you’re likely running more efficiently. But watch out for understocking, which can mean stockouts and lost sales. Always check trends with other data.
Using DIO for planning
Finance teams use DIO to steer buying, production timelines, and capital planning. When you're launching a new product, past DIO numbers help you figure out how much to order and how fast you'll see cash returns. When you're prepping for investors, solid DIO shows you manage working capital well.
How DIO links to other key metrics
DIO works with plenty of other ratios to give you a full health check.
Inventory turnover ratio
As mentioned above, inventory turnover and DIO go hand-in-hand. Inventory turnover ratio shows how many times you sell and replace inventory. High turnover (low DIO) means you’re moving product. Low turnover (high DIO) usually points to stalled sales or overstocked shelves.
Working capital management
DIO is a core working capital metric. The lower your DIO, the less time cash is tied up. For startups, this reduces risk that inventory goes unsold. It matters even more if you’re short on reserves.
Days sales outstanding (DSO)
DIO tracks how long goods sit unsold. DSO tracks how long it takes to collect from customers. Together they show your full cash loop.
Days payable outstanding (DPO)
DPO tracks how long you take to pay suppliers. High DPO means you hold on to cash longer. You shape your cash conversion cycle and capital needs by managing DIO, DSO, and DPO together.
Operational efficiency markers
Watch DIO with gross margin, fulfillment costs, and stockout rates. If DIO drops but you see more stockouts, you’ve moved too far. If DIO rises and margins fall, you might be discounting to move product.
DIO benchmarks and rules of thumb
Benchmarks depend on industry and your model. What works for grocery looks nothing like hardware manufacturing.
E-commerce and retail
Retailers in perishable goods often have DIO in the 10–20 day range. Electronics or apparel businesses can be healthy with 30–60 days on the books. Most US retail DIO falls between 30 to 60 days. The faster a product spoils or goes out of style, the lower you want DIO.
DIO ranges by segment:
- Apparel retailers: 50–70 days
- Electronics: 30–45 days
- Beauty and health: 60–75 days
Manufacturing and hardware
Manufacturers usually have DIO in the 60–100+ day range. It takes longer to make products, and you need raw materials and finished goods on hand. Auto parts might hit 75–90 days and be normal.
Special notes for startups
Your absolute DIO matters less than the direction. Improve efficiency as you grow. You might see 60-day DIO at Series A, and 45 days by Series B with smoother ops. Watch trends before worrying about matching industry averages.
Common mistakes
Keep DIO clean by working around these traps:
Mixing up DIO and inventory turnover
These are two sides of the same coin. DIO counts days. Turnover counts cycles. Keep the metrics separate in your reports and recaps.
Using revenue in the formula
This happens a lot. Plugging sales revenue into DIO will inflate the result since it includes markup. Stick with COGS, which is the real inventory cost.
Forgetting about slow-moving or obsolete inventory
If you have $100,000 of inventory but $20,000 hasn’t sold in six months, your actual DIO is higher than what you calculate. Track slow or obsolete stock separately. Move it out or write it down for accuracy.
Not adjusting for seasonality
Comparing Q4 DIO to Q2 for a seasonal business won’t reveal useful insights. Compare DIO year-over-year or use rolling averages for a smoother picture.
Using company-wide DIO without product breakdowns
One product may turn in 20 days, another in 90. Segment your DIO to see what moves fast and what stalls. You’ll find new ways to optimize.
Missing inventory types
Raw materials, work-in-progress, and finished goods all count as inventory but don’t act the same. A manufacturer with 60-day DIO might split as 20 days raw, 15 days WIP, 25 days finished. Breaking it out makes improvements easier.
Inventory valuation methods
FIFO (first-in, first-out) usually reports lower DIO than LIFO due to different accounting. When you compare DIO over time or across companies, confirm you’re consistent with valuation.
Overlooking inventory in transit and landed cost
If you ignore inventory in transit, DIO shows as lower than it is. Include goods en route for accuracy. Get landed costs right, such as freight, duties, insurance, handling. Skipping these makes average DIO look better than reality.
Comparing outside your industry or model
A 45-day DIO may be fantastic for furniture, but way too high for groceries. Always compare DIO in context.
How to track days inventory outstanding in Runway
Runway’s modeling platform centralizes DIO calculations and connects to your real data. No more version control headaches or broken spreadsheets.
Set up DIO calculations
First, pull your data into Runway using built-in integrations. Load your general ledger, including COGS, and another set for inventory balances. Connect these to your accounting tools or data warehouse. Runway pulls numbers in automatically.
Set up your DIO model. In Runway, a model works as a driver table, and each row is a metric you can track.
For average inventory, use:
= (Beginning inventory + Ending inventory) / 2
For inventory turnover, it’s:
= COGS / Average inventory
For DIO, multiply the result by days in the period. Runway's built-in daysInMonth() function grabs the right number for each month:
= (Average inventory / COGS) * daysInMonth()
Protect your formulas with basic error handling so you get clean results every time:
= ifError((Average inventory / COGS) * daysInMonth(), 0)
Split actuals and forecasts
Runway lets you use one formula for historic actuals and another for forecasts. Actuals come straight from your database. Your forecast formula builds in projected inventory swings. The switch from actual to forecast happens right after your last close date.
Break DIO out by segment
If inventory and COGS tie to products or warehouses, segment DIO by line or location. Runway rolls formulas across every dimension so you get DIO details without extra spreadsheet work.
See trends and plan scenarios
Add DIO to reports using driver table blocks. Put your key metrics on a chart. Use Runway's scenario planning to try out new strategies and see the impact on DIO and working capital.
Try scenarios for:
- Cutting inventory by 20%
- Boosting sales velocity by 15%
- Extending payment terms with suppliers
Each scenario updates DIO, your cash conversion cycle, and capital needs under those assumptions.
Make DIO visible across teams
Runway is built for collaboration. Share your DIO dashboards with ops, procurement, or the exec team. Everyone works from the same playbook, always updated as actuals sync in.
Keep DIO accurate as you scale
As your business grows, DIO logic needs to keep up. If you change your GL or update inventory tracking, Runway's rollups and references update too. One place to edit, and your whole reporting stack stays solid. Say goodbye to chasing down broken links in spreadsheets.
Frequently asked questions
How often should startups review their DIO?
Monthly is usually best. It keeps you close to changes in demand, seasonality, and purchasing patterns. Early-stage teams with fast-changing sales cycles may even monitor DIO weekly to catch issues before they affect cash flow.
What's a good way to tell whether a rising DIO is actually a problem?
Compare DIO movement against sales forecasts, inventory mix, and margin trends. A higher DIO paired with healthy sales growth may simply reflect intentional stock build, while a rising DIO alongside slipping gross margins often signals discounting or misaligned purchasing.
Which platforms help monitor inventory efficiency and DIO?
Runway provides automated DIO calculations, scenario modeling, and real-time data syncing so you can track inventory performance without maintaining complex spreadsheets.
How does DIO connect to forecasting accuracy?
If your forecasted DIO consistently differs from your actuals, it's often a sign that demand planning or purchasing assumptions need refinement. Tightening those assumptions improves both cash planning and inventory health.
Optimize your DIO
DIO gives you a clear pulse on one of your biggest working capital drivers. For startups, every dollar counts. Tracking and improving DIO can stretch your runway and help you move faster.
First, lock in your baseline DIO and check it every month. Break down performance by product line so you see where you shine and where you need a tune-up. Line up DIO with DSO, DPO, and your cash conversion cycle for the big picture.
Skip the classic errors: always use COGS, factor in seasonality, include goods in transit, and track obsolete inventory right. Run consistent valuations as you go.
Start tracking DIO in Runway.