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Glossary · Finance

What is Days Inventory Outstanding?

Days inventory outstanding is the average number of days it takes for stock on hand to sell through. It is inventory turnover expressed in days and it is the largest component of the cash cycle. The longer the day count, the more cash sits on the shelf to produce the same revenue. The acceptable band varies markedly by category.

Detail

Looking at the average is misleading; the catalog can read 60 days while A-group items run at 20 and C-group items at 300. The right read is per SKU, done alongside ABC analysis. Ways to shorten the day count: clear slow movers with markdowns, order smaller quantities more often, pull the intake calendar forward on seasonal items. The line between days outstanding and dead stock moves by category; 90 days is late in fast-moving goods and can be normal in furniture.

Formula

Days inventory outstanding = (Average inventory value ÷ Cost of goods sold) × 365

Example

With average inventory of 800,000 TL and annual cost of goods sold of 4,800,000 TL, days inventory outstanding is roughly 61 days.
FAQ

Common questions on this topic.

How is Days Inventory Outstanding calculated?

Days inventory outstanding = (Average inventory value ÷ Cost of goods sold) × 365

With average inventory of 800,000 TL and annual cost of goods sold of 4,800,000 TL, days inventory outstanding is roughly 61 days.

Why does Days Inventory Outstanding matter?

Looking at the average is misleading; the catalog can read 60 days while A-group items run at 20 and C-group items at 300. The right read is per SKU, done alongside ABC analysis. Ways to shorten the day count: clear slow movers with markdowns, order smaller quantities more often, pull the intake calendar forward on sea…

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