Days inventory outstanding, or, DIO, as it is often referred to, is a ratio that measures the average number of days that a company holds inventory before they transform that inventory into sales. The lower the figure, the better.
Lower DIO tells us that this inventory will tie up our cash for less time and that our risk of obsolete inventory is much less. Days inventory outstanding is also known as days sales of inventory and days in inventory.
Days inventory outstanding is one component of the cash conversion cycle or cash-to-cash cycle time. The cash conversion cycle is calculated using three metrics, they are: Days inventory outstanding, Days payable outstanding and Days sales outstanding. Why is this important? It tells us that The cash-to-cash cycle time can be improved by:
What does a high/low DIO mean?
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